Financial services providers and advisors may be able to increase their book of business simply by being willing to educate their high net worth clients.

Understanding of Investment Products

Research by Spectrem Group shows the affluent do not understand many of the investment products available to them. That lack of understanding may make these individuals hesitant to commit their money even to those investments that interest them.

The lack of investor knowledge is striking. For instance, only six of 10 individuals understand mutual funds, one of the largest portfolio holdings of the affluent. However, far fewer individuals are knowledgeable about private equity and venture capital, two investment products that have been getting a lot of media attention lately.

Research shows mutual funds are understood by 61% of the affluent, compared with 33% and 32% for private equity and venture capital, respectively.

Even fewer affluent individuals understand exchange-traded funds, another well publicized investment product (18%); hedge funds (17%); mutual fund wrap accounts (15%), and separately managed wrap accounts (13%).

Advisory firms may want to educate their clients about various types of investments and why they may or may not be appropriate in some cases.