The Wealth Advisor: What Internet Millionaires Want

Tax management and asset protection rank high on the list of services demanded by e-millionaires.

(Note: This is the second of two articles about Internet millionaires, their level of interest in various high-end products and services, and their expectations of their financial advisors.)

This year, long after the Internet bubble burst, we checked back with some e-millionaires who participated in a 1999 study to see how their attitudes and actions had changed, particularly when it came to products, services — and their advisors.

Last month, we wrote about the great opportunity for reps in delivering more sophisticated financial products. While most e-millionaires already had mutual funds, they were ready to move up to hedge funds and private equity funds. But their interest in these products far outweighed their actual use of the products. Just 3.2 percent had money in a hedge fund, for instance, while 81.4 percent said they were interested.

We also learned that in the intervening years e-millionaires' interest in certain high-end services had shifted. They became more interested in tax management, asset protection and offshore account services, for example, as their desire for consolidated statements waned.

E-Millionaires Re-evaluate Their Interest in Services
Service 1999 Study 2002 Study
Tax Management 94.4% 99.5%
Asset Protection 93.7% 99.5%
Offshore Accounts 80.1% 87.6%
Consolidated Statements 63.0% 48.1%
To qualify for our 1999 survey, investors had to have at least $1 million in investable assets; more than half had more than $10 million. And they had to have the money on hand, not in options. Some 8,354 e-millionaires control more than $300 billion in assets.
Source: Prince & Associates

Not surprisingly, tax management became even more of an issue after the bottom fell out of the market, as investors wanted to get maximum advantage from the losses they incurred. Almost all the 188 e-millionaires who responded to the second survey said they were interested in tax management, compared to 94.4 percent in 1999, when 652 were surveyed.

There was also nearly unanimous agreement about the importance of asset protection, compared with 93.7 percent stressing that point in the earlier survey. Many said they established trusts, family limited partnerships and other vehicles to protect their assets from former spouses and litigious family members. They also have to protect themselves from former employees and investors, who lost money even as the e-millionaires remained wealthy.

Offshore accounts are one form of asset protection, and interest in them has increased to 87.6 percent from 80.1 percent, according to the recent survey.

Rethinking Consolidated Statements

Three years ago, nearly two out of three e-millionaires surveyed expressed interest in receiving consolidated financial statements. At the time, it seemed like a great idea, given how widely diversified portfolios had become and how seemingly easy it was to provide the numbers via the Internet, where the hands-on investors could slice and dice the numbers.

This time around, though, less than half the respondents ranked consolidated statements as an important service.

Why? Well, for one thing, the technology has not completely caught up with the sales pitch. It's simply not that easy to gather and maintain up-to-date data about stocks, bonds, real estate, trusts and other investments. But even when consolidated statements are available, many e-millionaires worry that potential litigants or snooping offspring might get their hands on the information.

What's more, it turned out that consolidation gave advisors more information than some investors wanted. The e-millionaires didn't want to hear constant pitches for new products once their assets were laid out in a neat format. Also, the lead advisor, who would have ready access to the information, might not always remain the lead advisor.

In fact, nearly three-quarters of the e-millionaires in our second study said they changed their primary advisor the previous year.

Why? First, consider the context. Only a handful of advisors made money for their clients in the past two years. Anxiety heightened, leading to more scrutiny.

Poor performance wasn't reason enough for a demotion, however. Our research showed that primary advisors were demoted because of a combination of losses and a lack of responsiveness. Many advisors didn't take advantage of the opportunity to offset losses through personal interaction. Those advisors who met their clients face to face, initiated rather than dodged phone calls, and talked to clients throughout the downturn were the ones who kept their jobs or were promoted.

Therefore, while great performance fuels advisor popularity, interaction is an important factor. Overall, those who became primary advisors averaged 3.7 face-to-face meetings with their clients in the previous year. Those who were demoted averaged less than one (0.8).

And the subject matter of the conversations was not about passing the buck or blaming a volatile market. It was forward-looking.

That just goes to show once more how the parameters of client relationships are different for the affluent. When a client has five advisors, there's far more room to compare and contrast one to the next to see who falls short by comparison and where.

Not every advisor is cut loose just because of poor returns. At the same time, it's inevitable that there will be some casualties in a bad market. But when a client is faced with a combination of weak numbers and a poor relationship, the odds are good that assets will move and heads will roll.

Writers' BIOS:
Hannah Shaw Grove
is a managing director at Merrill Lynch Investment Managers.

Russ Alan Prince is president of Prince & Associates.

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