Mass affluent crowd worth pursuing with new approach

The financial advisory industry shouldn't write off the millions of mass-affluent investors who believe that professional advisers aren't worth it. Instead, the industry should view this group as an opportunity to remake old business models to better address their complaints and meet their needs, using “disruptive innovations” in pricing strategy, products and services, and even client customization to help attract mass-affluent people who now shun adviser help, according to a Deloitte Center for Financial Services survey of 1,027 investors. More than a third of such investors don't currently work with an adviser though 42% of them used to have one, the study showed. “Since 2008, an even larger proportion of the mass affluent has become disenfranchised with the traditional wealth advisory model,” said Ed Tracy, leader of Deloitte Consulting LLP's wealth management practice. “There's a clear opportunity if you can make it work properly for them.” One of the main reasons that this population bailed on its advisers was cost, specifically the perception that the price of the advice no longer was worth it, the study found. Certain clients of fee-based advisers didn't feel like they were paying a fair price during the recession when they watched their asset levels tick downward. However, a flat-fee model, assessment of fees based on a percentage of income or gains — almost like a hedge fund — or even different fees depending on the services being provided were three models that these investors perceived to be fairer than an assets-based fee, Mr. Tracy said. The disgruntled mass affluent also walked away because they didn't trust that their advisers were putting client interests first. They also felt the products and services being offered weren't customized enough for them, Mr. Tracy said. If advisers could come in with lower-cost products that aren't proprietary and offer conflict-free advice tailored to each client's needs and goals, “that would be an opportunity to reconnect with these folks,” he said. He pointed to the model used by multifamily offices, only less expensive. “Family offices have really hit a chord in the way they deliver services to the ultrahigh-net-worth segment,” Mr. Tracy said. “You could take aspects of that and scale and engineer a platform to deliver products and services more efficiently.” Cloud technologies and data management advances, as well as increasing agreements with third-party providers, could help make such a model a workable reality in the future, he said.