Asset Management

The New Rules In Growing Wallet Share

Exploring how to increase existing client assets

New study from FlexShare found that a client’s decision to increase his or her managed assets is driven more by emotions than advisor resources.

CHICAGO, June 22, 2022 – Northern Trust Asset Management’s FlexShares® Exchange Traded Funds announced today the findings from its latest research on how financial advisors can grow wallet share with existing high-net-worth (HNW) clients. While current research suggests that advisors need to improve their services to attract more assets, FlexShares’ study found that a client’s decision to increase his or her managed assets is driven more by emotions than advisor resources.

FlexShares’ two-part behavioral study included both in-depth interviews with HNW investors as well as an online survey of them to determine the driving factors behind increasing wallet share. The research revealed that clients often bring to an advisor relationship strong feelings about what is “safe” or comfortable and how much they want their advisor to manage. In fact, 63% of investors based their initial investment on “an amount that felt comfortable” rather than an informed strategy. These feelings aren’t always well-articulated and can be unconsciously motivated. Further, these emotions aren’t consistent based on any single factor like net worth, the scope of services, or the source of wealth. This indicates advisors need to tailor their client conversations to personality, not assets under management.

Through its client interviews, FlexShares uncovered five key “personas” that drive behavior. The firm suggests that advisors be mindful of them when engaging each client type, as they will help address the emotional aspect of asset allocation. Market distribution percentages in the following client types represent approximations rather than exact percentages of the population.

The Verifier: Making up approximately 40% of the market, this is someone who generally trusts the industry and is likely to have some investment expertise. Verifiers are open to consolidating their assets with an advisor who wins their trust over time by demonstrating expertise and personal connection. Advisors can engage this group by proactively identifying any gaps in their wealth plan, having more holistic planning conversations, and offering incentives for increased assets like lower fees or access to restricted investment opportunities.

The Simplifier: Another common client segment (~28% of the market) is the simplifier, who prefers to have a single advisor in control of his or her finances. This client thinks of his or her investable assets as a lump sum, tends to have less investment knowledge, and generally defers to an advisor’s judgment. As simplifiers want to access as much as they can in one place, advisors should explain their complete menu of services and proactively anticipate client needs with solutions.

The question of how to gather assets from existing clients has been top of mind for years – however, there’s a lack of advice about how to understand and accommodate the emotional aspect of this decision...

The Collector: This group (~22% of the market) prefers to spread their assets across multiple advisors to mitigate investment risk and gather different perspectives. They are nervous about “having all their eggs in one basket.” Since the collector’s key pain point is complexity across accounts, it behooves advisors to emphasize their ability to simplify financial planning through consolidation, rather than emphasizing incentives like price breaks.

The Protector: This client (~10% of the market) is highly risk-averse and approaches an advisor relationship with caution. Protectors may have substantial assets but are reluctant to cede control to an advisor and may prefer a do-it-yourself investment approach. Be patient to build trust with this client and focus on pursuing a relationship. Acts of selflessness like offering to help a relative free of charge or waiving a fee for service can be a turning point in building trust.

The Competitor: Competitors (~7% of the market) are highly outcome-oriented and prefer to have multiple advisors in order to compare performance. They closely track performance and say they will allocate more or less based on results. Focus on the dangers of chasing short-term performance. Encourage clients to think of the “long game” and the benefit of extending their investment horizon.

Building More Trusting Advisor-Client Relationships

“The question of how to gather assets from existing clients has been top of mind for years – however, there’s a lack of advice about how to understand and accommodate the emotional aspect of this decision. Our research sought to understand the underlying mindset of clients rather than simply what other services an advisor can give them,” said Laura Hanichak Gregg, Director of Practice Management and Advisor Research at FlexShares. “We believe that by offering advisors greater insight into clients’ unique personas and examples of how to tailor their strategies for each group, more trusting and collaborative advisor-client relationships will be built.”

Overall, FlexShares found that personas who have deeper advisor relationships and more consolidated exposure (such as The Verifier and The Simplifier) got more value from their advisors and had a more positive, stress-free experience with their wealth management. Access to the full research report, including ways to identify and win with each of the five personas, can be found here.

 

 

 

About the FlexShares Wallet Share Survey
This is the first iteration of a survey about growing wallet share conducted by Northern Trust’s FlexShares. The survey was conducted in two parts. Part one included in-depth interviews with 30 investors with $250K to $30 million in investable assets. Part two was a survey of 250+ investors with at least one financial advisor and between $250K to $5 million in investable assets. The five personas were derived inductively from the in-depth interviews and validated statistically through the survey.