OPENERS - OPINION

The ‘new’ HNW investor has always existed

A recently released report proclaims that wealthy individuals are becoming more involved in their investments. There is a flaw in this conclusion.

By Michael S. Farrell

The recently released Merrill-Capgemini World Wealth Report —conducted by New York-based Merrill Lynch Global Wealth Management, a unit of Bank of America Corporation, in partnership with Capgemini, a Paris-based consulting firm—provides a lot of data and color around the high-net-worth (HNW) and ultra-high-net-worth (UHNW) markets. These insights provide a lens through which the financial community will examine its prior successes and failures and create agendas for future growth.

While the report is making headlines by proclaiming that investor psyche has shifted in the wake of global financial crises, is the lens truly in focus? The masses are simply realizing what a select group of HNW and UHNW individuals have known all along: The most vital and beneficial role of the financial adviser—in any market condition—is to provide perspective, transparency and guidance around a client’s long-term financial strategy.

Market followers: Yesterday’s news

Financial executives and pundits alike have long been opining about plight of “market followers.” Market followers tag along with the pack, adopting strategies and asset classes made popular by positive, negative or even scandalous media coverage. In a good economy, they are overly optimistic, so they buy. And then buy some more. When the economy turns, they don’t panic at first. But eventually they sell, go to cash, maybe dabble in fixed income and, reliably, repeat the cycle all over again.

Rest assured: Market followers follow. These investors are enthusiastic and knowledgeable, but, unfortunately, they are one step behind. While HNW investors’ wealth levels in aggregate are back to 2007 levels, there are a lot of individual investors who, because they are market followers, are not as fortunate.

But let’s face it. Market followers are old news. Right now, the industry is all abuzz about a more deliberate kind of investor. And since a big portion of the financial services community has only recently discovered this group, let’s call them the “new HNW investors.” New HNW investors have what is considered a “new” perspective on wealth. They are more sensitive to different kinds of risk. They want more transparency. They can and will insist on being more involved in their financial decisions.

The big misconception regarding new HNW investors involves how the industry defines them. They are not new. They have been around a long time. The financial services industry just wasn’t paying attention.

Many of you out there can be considered new HNW investors. You are heavily involved in key decisions and have a well-thought-out plan in place. Importantly, you don’t just give lip service to this concept. Your plans truly are carefully considered and deliberate because (1) you already know what might happen to those plans in the event of a variety of “bad” scenarios and are comfortable with those tradeoffs; and (2) you know the old industry adage of “stick to the plan” actually works only because both you and your adviser are able to see the impact of change on your entire financial situation and are able to continually reassess its validity and adapt when necessary. And you recognize the rewards of this discipline not only through traditional metrics such as portfolio growth and risk management but also through more avant-garde measures, such as goal attainment and the confidence that comes with sound decision making.

Investors with a plan

New HNW investors don’t have a crystal ball or special insight into the markets. What they do have is a deliberate plan, a definition of success for themselves and their family, and advisers who provide comprehensive decision support beyond traditional investment analytics.

To them, we say, Don’t worry. You are not alone. To the others, we say, Take stock of what you are getting. Are you regularly armed with current information regarding how you are progressing relative to each of your specific goals? Do you truly have a complete picture of your entire financial situation (balance sheet, cash flows)? Do you really understand the impact that lower returns or higher inflation might have on your ability to do the things you care about?

If the answers to these questions are “no,” then you need to reassess your own approach and look for another adviser. And remain diligent until you find one. Believe it or not, there are advisers out there who “get it.”

And to the industry at large, we say, While you are certainly moving in the right direction, you need to pick up the pace. You’re not moving nearly fast enough or far enough to meet end investor needs. You know it. And investors know it too.

Michael S. Farrell is managing director for SEI Wealth Network, a business unit of SEI that provides private wealth management services.


Family Business receives awards

Family Business Magazine was honored this summer with several trade press awards.

The 20th anniversary issue (Autumn 2009) received an Apex Award for Publication Excellence in the “Magazines & Journals—Print Over 32 Pages” category. The Apex Award is a national honor that recognizes excellence in publications work by professional communicators.

The article “Planning a smooth succession,” by Margaret Steen (FB, Summer 2009), received a Regional Gold Azbee Award in the annual awards competition of the American Society of Business Publication Editors. The article “Communication and commitment,” by Deanne Stone (also in the Summer 2009 edition), received a Regional Silver Azbee Award.