If financial advisors need yet another reminder about the importance of contacting clients, here it is: In our study of affluent investors conducted in late October, almost half of the respondents said they had changed primary advisors in the last year. When we probed further into the client/advisor relationship, we found that, without exception, investors who had switched had less regular contact with their primary advisors than those who had not switched.
The group we surveyed included 123 respondents. The majority, 78.3 percent, had $1 million to $2 million in total investable assets; 15 percent had $3 million to $5 million; and the remaining 6.7 percent had $500,000 to $1 million. Nearly half (48.7 percent) had two investment or financial advisors, while another 42.3 percent had three. Nearly half (49.6 percent) were 66 years old or more, while another 36.6 percent were 56 to 65 years old; the remaining 13.8 percent were 46 to 55 years old. Finally, 81.3 percent of the respondents were men. In sum, it was largely an older, wealthy and masculine group of respondents. That nearly half of them switched their main advisor in the past year shows just how nervous they've been about the state of their finances and of the economy.
Our research showed that this flight from advisors was not a phenomenon of the rich alone. In a companion study of 495 retail investors, the majority (82.6 percent) of whom had $100,000 to $250,000 in investable assets, 248 also had changed main advisors within the last year. No matter which wealth bracket an advisor's clients fell into, about half of them took the dramatic step to end or minimize an advisory relationship in the last year.
Of course, the last 12 months have been acutely deflating for investors of any age and wealth. A year ago, the stock market — even the Nasdaq — was staging a healthy fourth-quarter rally that moved it well clear of the lows it had tumbled to in the wake of September 11. There were still plenty of economic warning signs, most notably sluggish corporate earnings. Some of the more conservative investment experts were predicting returns in the low single digits for the Dow in 2002. However, only a handful of bears were betting on a run of three straight down years for the first time since 1941.
A lot has happened since then, including a rash of corporate scandals, the continued threat of terrorism and the prospect of war with Iraq. The parade of dreary headlines has taken its toll: Of our surveyed group of investors, 39 percent of respondents claim to have lost half the value of their portfolios since the market peak in early 2000, while another 35.8 percent thought they had lost 51 percent or more. Only 25.2 percent estimated that their portfolio had gone up or stayed flat.
Even with all the bad news, our survey results show that proactive advisors can and do hold on to their affluent clients; and, from the advisor's perspective, regular client contact was more than simply making sure that a relationship did not end.
The answers investors gave us about what they were planning to do in the future were equally indicative of the value of regular contact. Of those who had three or more annual contacts, 66 percent planned on giving their primary advisor more assets to manage, and 64 percent said they would give that same advisor referrals. Of those clients who had two or fewer contacts from their advisor, the numbers were 1.4 percent and 0 percent, respectively. Although the portfolios of many had been battered for nearly three years, these affluent investors still had confidence in their advisors — as long as they were hearing from them.
When we asked those 53 affluent investors who had changed advisors why they had done so, only about half — 54.7 percent — cited investment performance. Dissatisfaction with the working relationship and a lack of chemistry were tied for the second-most common reason, at 75.5 percent. (There is overlap here, as most of the 53 investors cited more than one reason for leaving.) Most respondents (86.8 percent) cited the quality of service as their top reason for switching advisors.
| 0, 1, or 2 Contacts Annually with Advisor | 3 or more Contacts Annually with Advisor | Total | |
|---|---|---|---|
| Yes | 72.6% | 0.0% | 43.1% |
| No | 27.4% | 100.0% | 56.9% |
| (N=123 high net worth investors; source = Prince & Associates, 2002) | |||
| 0, 1, or 2 Contacts Annually with Advisor | 3 or more Contacts Annually with Advisor | Total | |
|---|---|---|---|
| Gone up or stayed Flat | 35.7% | 10.0% | 25.2% |
| Lost up to 50% | 30.1% | 52.0% | 39.0% |
| Lost 51% or more | 34.2% | 38.0% | 35.8% |
| (N=123 high net worth investors; source = Prince & Associates, 2002) | |||
| Investment performance | 54.7% |
| Dissatisfaction with the working relationship | 54.7% |
| Lack of “chemistry” | 75.5% |
| Quality of sevice | 86.8% |
| (N=123 high net worth investors; source = Prince & Associates, 2002) | |
Service does not mean filling a brokerage order or even callbacks; it means contact and connection (with effective connection hinging on the quality and timeliness of the content). The lack of effective contact and connection, combined with a down market, will spill over to other areas of the relationship. Personal chemistry is rarely an issue unless the business side of the relationship is faltering. The fact remains, however, that of those advisors who called or visited their affluent clients at least three times a year, each one is still working for each of his clients today, while half of those advisors who were less diligent are looking to fill new gaps in their client rosters.
Writers' BIOS:
Russ Alan Prince is president of Prince & Associates.
Hannah Shaw Grove is managing director at Merrill Lynch Investment Managers.
