Affluent investors losing faith in advisers
theglobeandmail.com
The rich are restless. Dissatisfied. Disappointed. On the move.
Over the past several months, there has been a dramatic erosion of confidence among investors. This erosion has hit investors of all levels of affluence, but has been particularly pronounced among wealthy individuals. Many of the wealthy feel unhappy and unsettled about their current advisory relationships. And they're not sure what to do.
In a recent survey by U.S.-based Spectrem Group, 36 per cent of millionaire households said they are not happy with their adviser's performance. A mere 14 per cent said they planned to make more use of advisers in the future.
The situation is much the same here in Canada. Since last fall, we have received five times as many calls from prospective clients as we usually receive.
Obviously, market turmoil is one reason for this crisis of confidence. Ineffective client communication is another. The best way to maintain the confidence of clients is to know how many one can regularly communicate with. I know the limit for my practice - 75 families, and no more than one new family a month.
People are all looking for the same thing: An adviser who can restore their confidence by providing a clear, well-reasoned "recovery plan" that can heal their portfolios and allow them to capitalize on future opportunities.
A conversation I had last week summarizes this investor dissatisfaction. I've changed the name, the numbers and some of the non-essential details to protect confidentiality, but I haven't distorted the underlying circumstances or changed the tenor of the conversation.
"Doug" is a serial entrepreneur who has founded a number of successful companies. His current net worth is about $75-million. We met for the first time late last week.
"I'm looking for a new adviser," he told me. His previous one - a well-known Canadian investment firm - had performed poorly last year. In 2008, his family's portfolio dropped from about $19-million to about $10-million.
Now, Doug is a veteran investor. He was certainly not happy with this performance, but he understands markets have been exceptionally volatile. He also recognizes that 2008 was a very bad year for investors around the world.
So rather than getting angry at the past, Doug came to his January portfolio review to discuss the future. Specifically, he wanted to know his lead adviser's outlook for 2009, and determine a course of action for the next 12 to 36 months. So he asked a question: How had the adviser's own portfolio performed in 2008, and how was the adviser positioning his personal portfolio for a recovery?
The response shocked him. Instead of acknowledging shortcomings and presenting a well-reasoned recovery plan, his adviser made an off-colour joke about his own costly divorce. The adviser's flippant response left Doug feeling displeased.
Doug took the weekend to reflect on the conversation. By Monday, he had concluded he had lost confidence in his adviser. He called the firm and told them he was actively searching for a new adviser.
I'm sure similar conversations are happening all over the country, at all levels of wealth. Do you still have confidence in your adviser? Here are some questions to ask: What steps did your adviser take to protect your capital? Was your adviser pro-active or reactive as last year's events unfolded? Did your adviser outperform an appropriate benchmark (or peer group for discretionary managers)?
You should also consider how often your adviser communicated with you and whether he or she understood your personal financial circumstances.
There is nothing your adviser can do to turn back the clock. What they can do is give you confidence in the future. They should have a plan to "lead you out of the wilderness," and have fresh, well-substantiated ideas on how to (a) protect your portfolio from further downside and (b) participate in the upside.
You can ask yourself those questions, whether you're wealthy or not. If you're not 100-per-cent satisfied with the answers to the above questions, perhaps it's time to start the search for a new adviser. |
