Wealthy clients looking for plans they can trust
* Wealthy investors have grown more skeptical of advice
* Clients taking matters more into their own hands
* Evidence-backed advice can help keep focus on long term
By John McCrank
TORONTO, May 26 (Reuters) – “Warren Buffett has a great saying, that when the tide goes out, we get to see who’s been swimming naked,” said Adam Butler, a director of wealth management and associate portfolio manager at Richardson GMP.
When the proverbial tide dropped in the markets in 2007 and into 2008, high-net-worth investors took a much closer look at their advisers, and many weren’t impressed with what they saw.
“High-net-worth individuals are beginning to see that the infrastructure underlying the wealth management industry is not as robust as they originally thought,” Butler said.
As a result, wealthy investors are increasingly taking matters into their own hands. That can complicate matters for wealth managers if there are no mechanisms in place to counter knee-jerk reactions by clients in times of volatility.
Investors are also shopping around a lot more for new advice, and advisers that have a solid plan to guide clients through the best and worst of times are winning business.
A report from Barclays Wealth this week found that nearly half of U.S. high-net-worth investors are reviewing their portfolios more than they were before the recession, and nearly a quarter are now spending more than five hours a week actively investing their money. Around half of the U.S. respondents, all of whom had over $1.5 million in assets available for investment, also said they think the U.S. and global economies will get worse before getting better.
“They are still looking for advice,” said Matt Brady, head of Wealth Advisory, Americas, at Barclays Wealth. “Certainly, I think they are looking for more advice, and also certainly getting much more actively involved in their own wealth management.” Brady said clients are looking for quality information they can trust, something that Butler highlighted as well.
High-net-worth clients are actively looking for advisers who offer more than just a “buy and hope” strategy, Butler added.
That led Butler and his colleague Michael Philbrick, co-head of the Butler/Philbrick and Associates practice at Richardson GMP, to look for a more effective way to guide their clients.
COMBAT THE HERD MENTALITY
Over 18 months, they developed what they say is a more transparent approach that they explain to clients from the start, to help remove behavioral biases that can quickly derail financial plans when the market goes sour.
Butler said their plan is based on scientific principles and is rooted in evidence about the behavior of investors and markets. It provides the ability to move out of risky assets when conditions are unfavorable, at a minimal cost, and it has a clear exit strategy to limit the chances of big losses.
“We don’t rely on gut checks or gut feel,” Butler said. “We rely on 140 years of data sliced and diced that illustrates that some very simple techniques can help people avoid catastrophic mistakes.”
Taking emotion out of the equation can eliminate knee-jerk reactions that people are prone to — like in recent times when traditional market truisms were turned on their head and many investors were selling low and buying high.
“It’s like a snake in a glass box in front of you,” said Philbrick, a director of wealth management, associate portfolio manager, and branch manager at Richardson GMP.
“When the snake strikes out at you, you inevitably jump back, even though you know, your logic tells you, you are 100 percent safe.”
He says clients increasingly look at their portfolios every day, or at least once a week, an approach that is not always productive in terms of the 20-year horizon most people have.
So Philbrick guides his clients back to the system to ease their fears and keep them looking at the long term.
With more and more wealthy advisers looking for new advice, Butler and Philbrick have found that their system not only helps them manage their current clients, but it’s attracting new ones as well.
“We are finding we are getting more and more referrals, especially as the economic and market situation becomes more and more ambiguous — that’s where advisers who are thoughtful and have a process really shine,” Butler said.
($1=$1.06 Canadian) (Reporting by John McCrank; editing by Frank McGurty and Rob Wilson)
Edit: Our CNBC interview has been pushed out to June 10th. We’ll let you know.