Embrace Investor Decision-Making Preferences

Leave a comment

The respondents to the 2016 Fidelity® Millionaire Outlook Study’s hit the bull’s eye for what most advisers would consider to be ideal client characteristics: entrepreneurs; $1,750,000 in median investable wealth; $125,000 in median income; 62 percent debt free. Although the study’s theme emphasized the worthy goal of making clients loyal advocates (see my Journal of Financial Planning article, “How to Deliver Empathetic Client Service and Gain Client Loyalty”), a significant strategic implication sat unattended.

When clients engage an adviser in this market, they are focused on an advisory relationship that shares decisions instead of the adviser taking the full-on discretionary lead. What’s even more threatening is that self-directed investors (i.e. do-it-yourself) represent the biggest segment.


Advice, Yes; Control, No
There are three important conclusions to make from these segments:

  1. Advice is desired across all segments. Expertise is needed and valued, but the key issue is: where does it come from, an adviser, online or both?
  1. Investor involvement drives the go-forward market. The relationship model wherein a family would turn over their investments on a fully discretionary basis is extinct for all but an adviser’s oldest clients (i.e. the “delegators”). With much at stake, many threats, and still-fresh bad investing memories, investors want to be involved and watchful.
  1. The toughest advice competitor is no adviser. A plurality believes “I can do it better myself,” and this is difficult to argue against in rising markets when combined with many online services encouraging self-sufficiency.

Building Bridges to Joint Decision Making

If 42 percent of the market (“validators with a digital adviser” and “self-directed”) is adviser resistant and 25 percent are mostly locked into existing adviser relationships (“delegators), it seems that “validators with an adviser” is the only segment through which an advisory business can grow. Or, what does this suggest about a firm’s growth prospects if 67 percent of the market is structurally resistant to a fee on AUM model?

Market segments shift, sometimes quite dramatically. For example, the 39 percent “self-directed” may be in a very different mood for help when the next marketing downturn occurs and/or as life becomes more complicated. Or, as the “delegators” transfer wealth, the recipients of that wealth—millennials and gen Xers—will find the prospect of managing a lot of money more complex and the failure risk more daunting.

Any business seeking growth must commit to establishing as many marketing relationships as possible. Flexibility, when market shifts occur, guides business sustainability.

Planting Seeds for Long-Term Sustainability
An integrated marketing program applies the expensive resources—an adviser’s time—to prospective clients in the decision-making mode; what would right now be the “validators with an adviser” segment. Scalable marketing resources (i.e. low cost per relationship) such as website content, webinars, seminars, educational material and editorial outreach are used to seed the other segments for a later harvest.

Here is a marketing game plan to position an adviser for long-term business success.

Be an Expert Resource. Few “self-directed” investors are wealth planning and investment experts. Instead, these investors search out expertise and, upon acquiring sufficient knowledge, act upon it themselves.

Distribute educational material via the firm’s website, centers of influence, local gatherings and local publications. Tip: A well-designed and written document carries gravitas and promotes itself; consider an advice subscription service.

Price Services for Involvement. Even with a desire for self-sufficiency, there are certain topics too complicated, time consuming and/or important for surface-level learning.

Be willing to engage in short-term projects by offering a one-time consulting fee for complex planning or second opinions; at a minimum, the adviser is able to demonstrate capabilities that can turn into a referral source.

Tip: Illustrate the dollar benefits received not just the project fee in the proposal, and show the ramifications if self-directed execution were to fail (see my blog “Clients Buy Benefits not Features”).

Distribute Advice through Technology. Call it what you want, but technology-delivered advice is happening and the market wants it.

Commit to a robo solution that provides for an adviser’s advice and investment choices in portfolio design (i.e. don’t outsource investment advice, an adviser’s core differentiation). Tip: Minimize business risks by using robo offerings with low breakeven costs.

Listen to the Market and Respond
Sustainable businesses adapt to a market’s dynamics. For high net worth investors, the shared and independent decision-making models are currently the preferred engagement methods. An advisory firm able to generate revenue from these segments—even if it means doing things differently—gains long-term sustainability.

Kirk LouryKirk Loury
Wealth Planning Consulting Inc.
Princeton Junction, New Jersey

Leave a Reply