Rich Folks Want to Know What They’re Paying Advisors For

Think less “fish in a barrel” and more “plenty of fish in the sea.”

Wealthy investors, long considered the most attractive prospective clients, are increasingly open to paying for financial advice, according to a recent Cerulli study. Nearly 70% of affluent investors said they would work with a wealth manager last year, up from just under 40% in 2010. Fee compression and greater access to advice have helped drive that shift.

But while the pool of potential clients is expanding, retaining them is a challenge. When clients leave, the issue often comes down to a mismatch between what services advisors think they’re delivering and what clients believe they’re receiving. Many clients say they have a targeted financial plan, while advisors are more likely to characterize their services as comprehensive. Clients may not fully recognize what they’re getting, and when that happens, they might not stick around.

“It’s not enough for advisors to simply have particular services. They need to ensure clients are aware of those services and how they are being delivered,” said John McKenna, senior analyst at Cerulli. “Transparency and the breadth of services are key reasons clients are likely to stay with their advisors long-term.”

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American wealth is growing, particularly among the already wealthy. Since 2010, those with net worths of more than $2 million, have added over $40 trillion to their total assets, and like Biggie said: “Mo money, mo problems.” Still, advisor usage doesn’t scale neatly with wealth, the Cerulli study found:

• The rate of advised investors jumps from 35% among those with $100,000 to $250,000 in assets to 57% among those with $1 million to 2 million.
• But then it drops to just 45% among those with $5 million or more.

When an investor has that much money, they’re still open to an advisor, but they’re looking for more bespoke, high-net-worth-focused services like tax optimization, business succession planning, estate planning and elder care and insurance. “This highlights a challenge advisors face when it comes to retaining or acquiring clients: Do they know what services you offer or what they are using?” McKenna told Advisor Upside.

Digital Face Lift. Client acquisition is evolving, too. Referrals and recommendations are still important for growing a book of business, but a lot of the discovery process is moving online, McKenna said. “Advisors will need to ensure that their websites are presentable and can effectively communicate their value proposition to prospective clients after a first contact,” he said. “Firms that can adapt to this new terrain will have the most success obtaining and retaining new clients.”