Do you know where (else) your clients are?

Study finds most have assets with more than one adviser but few advisers think so

Dec 19, 2012 @ 2:49 pm

By Jeff Benjamin

Financial advisers who think they have the full and undivided attention of their clients might be in for a rude awakening.

According to Cerulli Associates Inc.'s analysis of a year's worth of studies on financial advisory relationships, 70% of clients allocate assets to more than one adviser or directed-brokerage account.

What makes the data even more jarring is that, according to the research firm, only 17% of advisers believe their clients have assets allocated to other accounts.

Cerulli analyst Roger Stamper said the issue is less about clients' maintaining multiple accounts and advisory relationships than it is about advisers' lack of awareness that it is happening.

“Some investors want to have some of their assets separate from their adviser, and we're saying that these advisers need to somehow approach their clients and make them understand it is OK to disclose that information,” he said. “Having an outside account is not necessarily a bad thing, but if the clients at some point don't believe their interests are closely aligned with the adviser's, this could make for an easy exit for the client.”

Mr. Stamper, whose research included surveys of 10,000 financial advisers and 7,500 clients throughout the past year, said advisers need to recognize the growing influence of investor-oriented brokerage firms that are now offering various levels of low-cost advice.

“There's definitely a growing interest in the direct-investment market and the offerings are becoming more sophisticated,” he said.

The tendency to maintain multiple accounts has been compounded since the financial crisis, Mr. Stamper added, “because a lot of investors started to lose faith in their adviser's abilities.”

“It's up to the advisers to compete by trying to deepen those relationships and by ensuring clients that their interests are aligned,” he explained.

Theodore Feight, owner of Creative Financial Design, said he thinks only about 2% of his clients have outside financial relationships. He views every such account as an opportunity for more business.

“I have a few clients that have outside accounts, and it's more about them wanting an account to do something on their own,” he said. “But typically, over time, they will end up giving me the money to manage.”

Mr. Feight said he thinks the problem is more prevalent among less experienced advisers who might not be as confident about their worth as a practitioner.

“If we have a client that is going to do something like that, we explain to them that we can't do a total financial plan unless we know about everything you have,” he said. “I think the older advisers have a better handle on this sort of thing, because a lot of the younger advisers are just happy to get what they can get, and they haven't really decided what they're worth yet.”

Sam Ushio, practice management consultant at Russell Investments, acknowledged that it is important to be aware of a client's outside financial dealings and relationships, but he also said advisers should learn to accept it as a reality of the industry.

“Investors see diversification not only in terms of their portfolio, but also in terms of their advisers,” he said. “In a multihorse race, advisers usually want to be the lone adviser, so we challenge advisers to try and think through if their clients have other advisers.”

“If the clients have wealth, the likelihood is high that they have other relationships.” Mr. Ushio added.


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