Ultra-high net worth clients are “re-thinking their investment approach” and turning away from traditional asset allocation strategies and modern portfolio theory, according to Kristi Kuechler, president of the Institute for Private Investors, an organization of wealthy families and individuals who control over $50 billion in assets.
As a result, they are demanding a “bold and different approach from their advisors,” Kuechler told an afternoon session at the at the IMCA (Investment Management Consultants Association) Advanced Wealth Management Conference in San Francisco today.
The so-called “bucket approach” of dividing a portfolio into goals-based categories is gaining popularity among wealthy investors and is a “step in the right direction,” Kuechler said.
Stinging losses following the financial crisis have caused wealthy investors to question their advisors’ unrelenting emphasis on diversification, she said.
According to IPI surveys, portfolio management and investment advice are the wealth management services most valued by members. Risk has emerged as the top concern, as IPI members said they worried most about their money managers and liquidity. Kuechler cited PIMCO’s “risk factor allocation” methodology as one sophisticated attempt to address concerns about risk and re-fashion portfolio construction.
And while such new approaches are in an embryonic stage, she urged advisors to embrace them to regain their clients trust. But in the aftermath of the financial crisis, that won’t be easy, Kuechler said.
Only one-fifth of IPI members surveyed saw their wealth advisory firm as a “trusted advisor,” she pointed out, compared to the more than 50 percent who viewed their attorney as a trusted advisor.
And wealthy investors are doing more due diligence and using more managers than ever before. “Wealth managers will have to work hard to regain that trust,” Kuechler said.
