The ClientWise Blog

Decamillionaires Need Your Help!

Posted by Chris Holman on Apr 12, 2011 9:35:00 AM


There’s a famous, and most likely apocryphal, exchange between Ernest Hemingway and F. Scott Fitzgerald:

Fitzgerald: “The rich are very different from you and I.”

Hemingway: “Yes. They have more money.”

They may be different in another way. They have more advisors.

According to recent research from Cerulli Associates, 57% of U.S. households with at least $10 million in investable assets are now working with five, or more, financial advisors.

This is a shocking number! Almost impossible to believe. It's also a quantum leap from previous years. For example, in 2008 only 18% of wealthier households were working with more than one advisor.

What accounts for this increase? For financial advisors here's the bigger question...how might they respond to this trend?

In the first place, the 57% figure is such a mind-blowing number, you wonder if this is a mistake...some egregious polling error. However, I recently saw another report by Cisco Internet Business Solutions Group that indicated 80% of wealthy investors had their assets spread amongst 2 or more firms.

So, let’s assume that the 57% number has some statistical validity.

I’ve blogged about this before, here…and here. However, since the problem seems to be getting worse, not better, continued discussion seems timely.

Let's look at the first question. What accounts for the increase in affluent investors who have moved to working with multiple advisors?

The most obvious answer is that there has been an erosion of trust and confidence. The volatility in the credit, stock markets, US economy has made it more difficult for the wealthy to manage their wealth, maintain their lifestyle, and achieve their goals. Presumably, the move to hire multiple financial advisors is the result of a desire to minimize risk.

The great irony is that, by working with multiple advisors, investors greatly increase portfolio risk...as well as the overall complexity of portfolio oversight.

Take a look at this study for a lengthy discussion of why this is true.

For financial advisors, the bigger question is how to respond, i.e. when you meet an investor who is involved in bad investment behavior that is injurious to their financial health...what do you say or do to get them to listen?

Alternatively, I would think that a non-judgmental, question-based approach that engages the investor in dialogue, and gets them to think about what they're doing...is a good shortcut to building a relationship.

Simple questions like:

  • Who is responsible for your asset-allocation strategy?
  • How do your advisors coordinate and collaborate with each other?
  • What's the communication plan amongst all of your advisors...and you?
  • How do you prevent portfolio overlap?

...might go a long way to building a relationship of confidence and trust; and leading to more substantive conversations.

Thank you Joan!

Enjoyed this article? Click here to subscribe!

ClientWise is the premier financial advisor coach focused on business development and management best practices for financial advisors.

Topics: Trust