As a result of shifting views of high-net-worth and ultrahigh-net-worth investors, financial advisers will have to re-evaluate business practices, including fees, portfolios and investment policies, according to wealth managers and industry observers.
A new survey by the New York-based Institute for Private Investors showed that wealthy investors doubled the cash allocation in their portfolios last year to 16.7%, from 8.6% in 2007. Fixed income made up 15% of the average portfolio of those surveyed last year, up from 10% in 2007.
Those findings were echoed by another survey of high-net-worth investors that The Phoenix Cos. Inc. of Hartford, Conn., released last week. Half the respondents to that survey, who were polled in January and February and had a net worth of $1 million or more, said that they had become more risk-averse in the past 12 months.
These investment trends will probably lead to lower fees, said James Hausberg, a Los Angeles-based wealth manager and a managing partner in Los Angeles for San Francisco-based Presidio Financial Partners LLC, which has about $4 billion in assets under management. “As you see more interest in fixed income and indexing, there will probably be more sensitivity to fees,” he said.
In light of the increasing penchant for safety among even wealthy clients, advisers are also likely to offer more “product solutions that merge investment and insurance features,” said Walter Zultowski, senior vice president of research at Phoenix and author of the 2009 Phoenix Wealth Survey. “One of the lessons that I believe is being learned today is that in a severe financial downturn, asset allocation is not enough to protect one's assets,” he said.
Portfolios increasingly will re-quire “some insurance component,” Mr. Zultowski said.
According to the IPI survey, 50% of wealthy investors surveyed that had a written investment policy thought that recent market events required changes to the policy.
Timothy Rowland, a certified financial planner and chairman of Scottsdale, Ariz.-based Rowland Carmichael Advisers Inc., said that he has been seeing similar concerns among his clients. “We're in the process of talking more to clients about investment objectives, which is a discussion about the parameters of expectations, versus a policy statement, which drags you into target asset allocation,” he said.
Investment flexibility has be-come more important to wealthy investors, said Kristi Kuechler, an IPI director based in San Francisco.
“Many investors are questioning the assumptions underlying investment policies and strategic asset allocations, and they want advisers to also be open to questioning those assumptions,” she said.
Advisers also need to be up to speed when recommending alternative investments and hedge fund managers to wealthy advisers, Ms. Kuechler said, noting that alternatives took up virtually the same percentage of the firm's portfolio in 2007 and 2008, at about 45%.
She also pointed out that the IPI survey showed that its members are firing and hiring hedge fund managers at about the same rate.
“They're playing musical chairs, and they still need good information for their advisers,” Ms. Kuechler said.
The IPI surveyed its 380 member families, which had investible assets of at least $30 million, and received 92 responses.The survey included on-line interviews by Rochester, N.Y.-based Harris Interactive Inc. with 1,735 randomly selected individuals with a net worth of $1 million or more, not including the value of their primary residence.
E-mail Charles Paikert at [email protected].
