Wealthy clients to advisers: Show us the money — regularly

Rich don't give advisers full control of their assets, survey finds

By Andrew Osterland

Jan 10, 2013 @ 3:30 pm (Updated 11:48 am) EST

wealth management, advisers, high net worth

Rich people want to know what's being done with their money.

A survey of ultra-high-net worth investors released on Thursday by the Institute for Private Investors found that very wealthy people are taking a more active role in the management of their own money — or at least more active role with their advisers.

The survey of 75 families who are members of the institute found that only 32% of those with under $50 million in assets are comfortable giving full discretion over portfolio management to their financial advisers. Only one in five families surveyed with more than $200 million in assets give their advisers full discretion.

“The market has changed. Post-2008, people are taking more responsibility for their own wealth,” said IPI executive director Mindy Rosenthal.

It's not that the clients don't trust their advisers. Ms. Rosenthal said the level of interest in control is constant regardless of the client's relationship with their adviser.

“Even families very happy with their advisers are monitoring them more closely,” she said. “They are more focused on risk management, transparency and conflicts of interest that their advisers may have.”

That makes sense, given investors' opinions about their advisers' conflicts of interests. Sixty-three percent of respondents said they saw no progress or continue to see problems regarding conflicts of interests involving their advisers and their firms.

The IPI also surveyed 14 advisers to wealthy families and, surprisingly, they have similar views on the issue of conflicts. Only 38% said their advisory firms are subject to fewer conflicts, and have more reasonable and transparent fees than five years ago.

Interestingly, Ms. Rosenthal considered that result a good sign.

“I think everybody is becoming more realistic about how firms work and where their conflicts are,” she said. “It may make them better advisers.”

The study also showed that families tend to hand over more control to in-house chief investment officers — usually a family member or someone well-known to them — than they do to outsiders.

Of those families with their own CIOs, 36% give them full discretion, versus just 10% for those families with outside CIOs. Sixty-one percent of the surveyed families have outsiders handling their investments.

The families surveyed are clearly anxious about their investment strategies.

Just 28% said they are confident about their current strategy, while 23% expressed major concern and 49% are neutral on the subject.

It's not surprising that people are more concerned with the investment climate. Assets like stocks, bonds and hedge funds aren't posting the returns they were before the financial crisis,” said Ms. Rosenthal.

The lack of confidence in their investment strategies hasn't translated into lower spending, however. The survey found that only 28% of families felt that the lower return environment put “significant pressure” on their spending habits or on their way of looking at wealth management in general.

“It's somewhat surprising that investors weren't more concerned about their spending,” said Ms. Rosenthal. “It may reflect that they can afford to wait this out for a couple of years or that they have already corrected spending habits.”