Detroit—“Our clients are getting lost in the swamp of negativity from all of this political campaigning in our state. I’m getting the feeling that they’re becoming increasingly more nervous about their finances,” Robert said during the Q&A following my presentation. “What is really important to today’s affluent investor?”
Robert’s timing was fortuitous, as we had just completed the first stage of our 2012 Affluent Investor Study and I’d been pouring over the data. Political rhetoric aside, the impact of what will go down in history as the Great Recession continues to affect affluent investor expectations and redefine the relationship they want with a financial advisor. We’re witnessing two major changes, which I refer to as macro affluent shifts.
Macro Affluent Shifts
Two broad findings highlight how the economic challenges we’ve been experiencing over the past few years have fundamentally changed the relationship between the affluent investor and financial advisors. The first involves gender, which will be our focus in this Practice Management Letter. A strong case can be made that it’s becoming a woman’s world, and this goes far beyond the demographics of women outliving men. Today’s affluent women are taking a much more active role in virtually every aspect of their family’s finances. Two important facts have surfaced from this active involvement:
1. Affluent women place greater importance than men on most of the statistically significant criteria ranked important regarding their financial advisor relationship.
2. Affluent women have higher expectations than men regarding the performance of their financial advisor as it relates to these “important” criteria.
These facts are broad and far-reaching, and at the very minimum make it critical for financial advisors to start focusing more time and attention to the women of their affluent client households. And this must be accomplished on both a professional and personal level. It appears that the woman of today’s affluent household has experienced her male counterpart handling the family portfolio pre-financial crisis. It’s not that they’re blaming their husband or their financial advisors for depleting the family portfolio, but now they are insisting upon being involved.
For many advisors this will be a sea change as they find themselves answering to the woman of an affluent client household for making certain that their expectations are met at every level. The current reality is that affluent women view their current financial advisor through a different lens; they have much larger performance gaps in the criteria they consider important.
We see this as a serious “gender shift”—if the woman of an affluent household is pleased with the family’s financial advisor, the probability is extremely high that the husband’s expectations are also being met. However, the reverse is no longer true. The “I know you play golf with Rob and he’s your buddy, but I don’t trust him overseeing our family’s financial affairs” is a conversation that will signal the beginning of the end to a financial advisor relationship.
If you think we might be overreacting a bit to these facts, I suggest that you think again. The “Important” criteria (using a 1 to 5 ranking, with 5 representing “extremely important”) reflects the significance to our general population of affluent responders. The “Performance” ranking (1 to 5 ranking, with 5 representing “extremely well”) reflects financial advisor performance. Below is a sampling of a few “Affluent Important” criteria and the corresponding “Advisor Performance” rankings. What is notable is how the advisor performance falls short, and the higher importance women place on each of these criteria.
Affluent Importance Criteria / Advisor Performance
· Possessing a breadth and depth of industry knowledge.
- Affluent general population ranking on importance: 4.49.
- Affluent women ranking on importance: 4.66.
Advisor Performance ranking: 4.37 (- .13 gap general /- .30 gap affluent women).
· Delivering high-level personalized service.
- Affluent general population ranking on importance: 4.32.
- Affluent women ranking on importance: 4.45.
Advisor Performance ranking: 4.24 (- .06 gap general /- .21 gap affluent women.)
· Meeting investment performance expectations.
- Affluent general population ranking on importance: 4.49.
- Affluent women ranking on importance: 4.62.
Advisor Performance ranking: 4.06 (- .43 gap general /- .56 gap affluent women).
With the exception of Advisor Performance regarding “delivering high-level personalized service,” all of the gaps have statistical significance—which means affluent expectations in these areas are not being met. The difference between our general affluent findings and those of affluent women tells us the latter have higher expectations of their advisor.
As dramatic as this might appear at first glance, it is easily remedied. If you haven’t met with husband and wife for a review within the past three months, now is a good time to put it on the calendar. During that review, focus more of your attention on the woman of the household. If you’ve just recently conducted your review with husband and wife, schedule a “couples” night out for dinner. None of this is complicated, but it does need to be treated as a priority needing immediate attention.
Be on the lookout for more on this topic as we continue to work through all of our findings. In the next issue of Practice Management Letter, I’ll share with you an overview of our second macro shift—the relationship shift.
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