Clients With Multiple Advisors

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Clients and households are increasingly more likely to divide their financial assets among multiple financial advisors as their wealth increases. This is an old, long established phenomenon that is common knowledge within the financial services industry. However, recent studies conducted by Cerulli Associates (a consulting firm specializing in market research related to financial services) indicate that this tendency for the wealthy to have multiple financial advisors has become more pronounced in recent years.

The reason, according to Cerulli, is that investment losses suffered in the bear market period from 2007 to 2009 have made many investors especially skeptical of the value added by their financial advisors, and have inclined them to seek second opinions. The research by Cerulli indicates that:

  • About 25% of all households that use a financial advisor have more than one.
  • Among high net worth households with between $2 million and $5 million in financial assets, the figure climbs to 33%.
  • For households with $5 million or more, it is over 50%.
  • Among those with $5 million or more, the average number of financial advisors has risen from 1.51 in 2008 to 2.25 in 2011.

Moreover, maintaining multiple financial advisory relationships can be utilized by some savvy clients as a negotiating tool to obtain discounted commissions and fees, in return for promises to move financial assets in the future to the financial advisor and firm offering the best pricing. This old motivation for spreading wealth around was not mentioned in the Cerulli study.

Cerulli does point out that the trend may reverse itself. In particular, the inconvenience associated with maintaining and monitoring relationships with multiple securities firms and financial advisors may overcome the perceived benefits of risk reduction and diversification, and thus impel clients to consolidate accounts and assets, eliminating secondary advisory relationships.

The key to capturing a greater share of clients’ total financial assets, according to Cerulli, is better communications with them, in which tangible demonstrations of the financial advisor’s value added are made. Communication with clients has long been demonstrated to be a key driver of client satisfaction. Regarding communications, these are especially critical in times of market volatility and protracted bear market downturns.

Being proactive in giving clients clear explanations of the likely impacts on their portfolios, and of the rationale for the strategies recommended by the financial advisor (this also applies to financial planners) normally is the best way to decrease investor fears and increase their confidence in your advice and expertise. Red Zone Marketing, a consulting firm that assists financial advisors in crafting strategies to market their services, finds that advisors who communicate well with clients during trying times are likely to benefit from positive word of mouth, and thus may actually have a great opportunity to add clients during challenging investing periods, as counter intuitive as this may appear at first glance.

Additionally, close monitoring of client activity should give early warnings of relationships that are headed for trouble because of declining client satisfaction. For example, if a client ceases making regular deposits of pay or benefit checks (or, even more obviously, eliminates one or more direct deposits thereof), this is a clear indication that the funds probably are being directed elsewhere.

On the other hand, clients who have multiple financial advisors, and/or those who have significant sums invested with other financial services firms (including, but not limited to, banks, brokerage firms and mutual fund companies) present prime opportunities for gathering additional assets, presumably needing less marketing pitch than entirely new prospects who are unknown to you. The better and more advanced firms will have specialists on staff who can assist financial advisors with developing sources of intelligence that can identify such underpenetrated clients and begin the process of convincing them to consolidate their assets and accounts.

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