Wealth Managers are hindered by preconceived notions

Filed in Asset Management

Wealth managers and financial advisors know that to be successful, they have to understand the needs of their clients. However, what they think they know about their clients may just be holding them back.

Introduction:

Studying client demographics, risk tolerance and goals such as investment, philanthropy, wealth transfer are all common activities and marketing approaches employed by wealth managers. However, a recent study by Bank of America Merrill Lynch has identified a number of areas where the wealth management industry needs to change their preconceived notions in order to better serve client needs.

Two Trend Changes:

The President of Global Wealth Investment at Bank of America Merrill Lynch, Sallie Krawcheck, recently noted two trend changes that should impact how the industry services their clients.

Decrease in Risk Tolerance:

Bank of America Merrill Lynch has found that many clients continue to feel burned by the market volatility and losses from 2008 – 2009. In fact, this fear of investment losses has kept some clients from taking advantage of the U.S. stock market’s strong performance over the last two years.

Ms. Krawcheck believes that to get those investors off the sidelines and back into the market, wealth managers need to better identify that client needs have changed. The preconceived notion was that all individual investors are most interested in upside investment returns. Now, clients are looking to strike a balance with investment returns and more downside protection.

Age Demographics No Longer Hold True:

Risk-aversion and the use of technology has changed amongst older generations as well as Gen X / Y investors, those 25- to 35-year-olds.

Bank of America Merrill Lynch has found that younger generations, with typically long investment timeframes, were always thought to have a reputation for embracing risk but have definitely become risk averse.

“Despite conventional wisdom, 25- to 35-year-olds are more conservative than everyone but their grandparents,” Ms. Krawcheck said.

This generational finding matches the “MFS Investing Sentiment Survey” I recently wrote about.

Additionally, older investors have finally become comfortable utilizing the internet and now wish to make use of technology such as mobile, tablets (such as the iPad) and laptops to have access to account information.