Changing Advisors? Take Some Tips From the Wealthy

Are you thinking about changing advisors or, perhaps looking for your first financial advisor? Take some tips from wealthy investors who enjoy profitable, long-standing relationships with financial professionals.

“Do-it-yourself planning is certainly an option,” said Morningstar contributor Mark Miller, “but a little help from professional advisor can be well worth the time and money. The rationale for hiring advisor is simple: Money spent now could make a big difference in helping you achieve a secure, happy future retirement down the road.”

High net investors agree, according to a Millionaire Corner study on the relationships between financial professionals and investors with $5 million to $25 million, not including primary residence. Ninety percent of these high net worth investors works with an advisor and, of these, the majority works with their advisors to develop overall financial plans and investment plans, balance their portfolios, and choose individual stocks and bonds.

Eighty percent of high net worth investors report overall satisfaction with their advisors, according to our second quarter 2011 study. Nearly 40 percent of the investors have been with their advisors for three to 10 years, and 46 percent have worked with their advisor for 10 years or more.

What are the secrets to these successful relationships? High net worth investors look primarily for an individual who is honest and trustworthy, putting an individual’s character above their performance track record. Virtually all (99 percent) of high net worth investors rated honesty as an important criterion for choosing an advisor. Transparency and track record ranked second and were cited as important by 93 percent of investors. Fees and commissions, while important to 83 percent of investors, ranked sixth in overall criteria.

The recommendations of friends and family member carry the most weight with ultra high net worth investors researching or changing advisors. More than half (51 percent) found their advisor through a personal referral. Wealthy investors also put great weight on the professional qualifications. Two-thirds agreed with the statement, “It is very important to me that my advisor has professional registrations and licenses, such as a CFP or CPA.”

The affluent work primarily with a full service broker (39 percent) and an accountant (21 percent), though independent financial planners (17 percent), discount/online brokers and investment managers (15 percent) rank in the top five most popular types of financial advisors for wealth clients.

Millionaires place a high value on the advice of financial professionals. Fewer than one-fourth feel they can do a better job than a professional and more than two-thirds (67 percent) are comfortable with the fees paid to an advisor, though one-third prefer commissions and two-thirds prefer paying fees for services. Of those investors preferring fees, 60 percent prefer a flat fee for services rendered and 40 percent prefer paying a fee based on percentage of assets.

The key threat to the advisor-client relationship appears to be poor communication. The key reason given for changing advisors is the failure to return phone calls and emails in a “timely manger” – that means within hours for most high net worth investors.