CFA Perspectives: What Do High-Net-Worth Investors Want from Financial Advisors?

When I meet someone who is a CFA charterholder, I immediately assume they are a portfolio manager, analyst, or some other investment-focused role on the institutional side of the asset management business. But I shouldn’t make that assumption. CFA charterholders represent a range of financial roles, including a strong presence in the private wealth management space.

The CFA Institute is working hard to help wealth management professionals advance their careers and maximize the value of the charter that they spent hundreds of hours earning. Bob Dannhauser, former head of Global Private Wealth Management at the CFA Institute, came to Chicago in November to share his insights with the Financial Communications Society.

Dannhauser was the keynote speaker at a luncheon titled “What High-Net-Worth Investors Want from Their Financial Advisors.” He kicked off the luncheon with a detailed presentation on the CFA Institute’s recent research into HNW investors’ preferences when seeking wealth management services. In particular, the CFA Institute sought to understand why HNW investors (defined by the CFA Institute has investors with at least $1 million in investable assets) seek financial advice, how they navigate the market, how their needs evolve, and the various ways they get advice.

So, what exactly do HNW investors want from their financial advisors? Below, we dive into some key takeaways from the CFA Institute’s research.

HNW Investors—Especially Younger and Wealthier Individuals—Care About Credentials

Attention all financial advisors considering the pursuit of a professional designation: HNW investors show a strong preference for designations and credentials, such as the CFA charter, when selecting a private wealth manager. This observation is especially true for younger (aged 50 and younger) and wealthier ($5 million+ in investable assets) individuals. 43% of HNW investors surveyed by the CFA Institute reported that designations are “extremely important” (14% of respondents) or “very important” (29% of respondents) when selecting an advisor.

HNW investors’ emphasis on credentials is particularly strong for younger investors (less than 50 years old), who were 2x more likely to say credentials are important vs. older investors, as well as wealthier individuals ($5 million+ in investable assets), who were 2x more likely to say that professional designations are “extremely important” vs. respondents with $1 million to $5 million in investable assets. In short, the most attractive segments of the high-net-worth market care a lot about credentials. We know such credentials require a ton of hard work and determination, but the investment appears to be worth it.

Personal Referrals Matter—A Lot

The CFA Institute sought to understand what most commonly causes HNW investors to seek financial advice in the first place. More than half (57%) of HNW individuals reported that they first sought advice from a financial advisor because they had accumulated enough assets—interesting, but not terribly surprising. What is more eye-opening is how influential personal referrals are in this space: 30% of respondents said they sought advice from a financial advisor because of referrals from people they trust.

Clearly, word-of-mouth is extremely important in this market. In addition to providing great service to their existing clients and asking for referrals when appropriate, wealth managers should ensure that their own personal networks are well-aware of their wealth management capabilities and offerings and armed to serve as advocates for their expertise.

HNW Investors Rarely Switch Financial Advisors

Nearly 50% of HNW investors reported that they have never switched financial advisors. This observation was consistent across age groups and wealth levels. On the positive side, this seems to indicate that HNW investors are relatively happy with the financial guidance they are receiving. But even if a client never plans to switch advisors, the fact that many advisors are nearing retirement and the realities of succession planning mean that a transition is likely to happen at some point.

This highlights the need for HNW investors to proactively speak with their wealth managers regarding their retirement and succession plans. Investors should ensure that their investment approach and portfolio preferences are memorialized in order to ensure a smooth transition to a new wealth manager if and when an advisor retires or is no longer able to manage their money.

Performance Concerns Are the Leading Cause for Firing an Advisor

Performance concerns were cited as the most common reason that HNW investors switch financial advisors. This presents an interesting challenge for investors and their wealth managers: how can one accurately assess performance? What are the most relevant benchmarks? What are the many reasons why an investor’s personal returns will never completely match the benchmark, even if the investor pursues a pure indexing strategy?

These are inherently difficult questions to answer when assessing a financial advisor’s performance. But that doesn’t mean financial advisors should avoid them. Set reasonable expectations, develop appropriate benchmarks, educate clients about the limitations of benchmark comparisons, and keep clients as informed as possible regarding performance, including highlighting periods of outperformance as well as being transparent during periods of underperformance.

Investment Savvy, Product Access, and Listening Skills Are Most Important

Not surprisingly, HNW investors seek private wealth managers who are experienced and have demonstrated expertise in investing. While this ranked as the most important skill among survey respondents, it is interesting to point out how this preference differed by age group. HNW investors aged 50+ showed a clear preference for investment expertise/savvy, as 20% of that cohort listed it as their No. 1 requirement. Younger investors, however, prioritized access to and knowledge of a variety of investment products, as well as a holistic approach to wealth management, as most important. Investors aged 40–49 prioritized good listening skills and an ability to listen and understand their needs above all other skills.

For advisors focused on reaching the next generation of investors, there are several valuable takeaways from these findings. Ensure that you are providing a holistic approach to wealth management, which is one of the highest-ranked preferences among younger HNW individuals. In addition, highlight your investment expertise and consider expanding your investment knowledge through avenues including professional designations and continuing education.

Don’t Just Blame Millennials: Robo-Advisors Are Gaining Acceptance for All Age Groups

Digital offerings and robo-advisors have appeal across age groups, not just younger, more tech-savvy generations. More than 25% of all survey respondents reported that they would prefer to use a full-service tech solution for financial and investment management, if such an option were available, rather than work with a human advisor. While it is true that younger investors are more open to a tech solution (40% of respondents aged 25–35 years said they would prefer a tech solution to a human one), a full one-fifth of respondents aged 60+ years said they would prefer a tech solution.

While we don’t expect robo-advisors to put human advisors completely out of work anytime soon, wealth managers need to confront the increasing acceptance of such approaches for investors of all ages. Don’t assume that millennials and other digital natives are the only ones who value the benefits that technology can bring to a relationship.

Investors Struggle with the Right Questions to Ask Financial Advisors

The CFA Institute found that HNW investors’ biggest challenge in finding a great financial advisor lies in knowing the right questions to ask. To improve investors’ ability to perform proper due diligence on wealth managers, the CFA Institute built a website, www.therightquestion.org, that provides investors with sample questions to help guide their search process. Advisors should familiarize themselves with the questions that the CFA institute is recommending that HNW investors ask. This is a great way to understand the “buyer’s journey” of potential clients, to prepare for any potential curveballs that may come up during the courtship phase, as well as to identify ways to proactively strengthen relationships with existing clients.

Using Thought Leadership to Give HNW Investors What They Want

At Wentworth Financial Communications, we view presentations like Dannhauser’s through the lens of thought leadership. The CFA Institute’s findings about the importance of credentials is one area where we think thought leadership can play an especially powerful role in moving the needle in terms of how existing clients and prospects view advisors.

If you have the CFA, CFP, CPA, CAIA, or other well-respected designation, here are a few recommendations for how you can use thought leadership to build credibility:

• Write a series of blog posts or record a video explaining why you dedicated so much time to building that expertise. The point isn’t to brag, but to show that you are committed to staying at the leading edge of your craft.
• Write a blog post or a one-page marketing piece explaining the various credentials that you have. Don’t assume that clients know the difference between CFA and CAIA, for example.
• Use social media or your blog to share insights from continuing education events that you have completed; find a few takeaways from each CE event that are relevant to investors and talk about how what you learned will shape how you invest.
• Use your newsletter or blog to share white papers and other research from the organizations that you are a member of. Briefly summarize the findings and explain why they matter to your clients. Not all of your clients will care about the research, but many will. This is another way to show that you know how to take the latest thinking in the investment field and make it tangible and digestible for your clients.

These are just a few ideas for how to use thought leadership and content marketing to strengthen your relationships with HNW investors and anticipate their questions. If you would like to learn more about how thought leadership can help you answer the question of what HNW investors want from their financial advisor, we are always happy to share our thoughts.

About the Author Scott Wentworth is the CEO at Wentworth Financial Communications. He collaborates with a team of writers and editors at Wentworth to help professionals across the financial services industry build their brands by creating investment-grade white papers, bylined articles, newsletters, blogs, social media posts, and other forms of content marketing.