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Wealthy want advisers to show them the money

I wrote recently about the intriguing research on the wealthy done by my former colleagues at Merrill Lynch ( World’s wealthiest playing it safe with investments) . Every year, the firm joins with fellow publishers CapGemini Group to produce the World Wealth Report (WWR), a survey of the behaviour and attitudes of the world's high-net-worth individuals (defined as those with more than $1-million [U.S.]in investable assets). You can download a complimentary copy at

As I noted then, perhaps the most compelling insight of this year's WWR is that the psyche of wealthy individuals has changed. Call it the new world order: a time of profound change, in which wealthy clients insist on taking a more hands-on approach to their wealth.

This coincides with my own observations on the ground. Judging from the high-net-worth individuals I've spoken with over the past several months, there seems to be a strong desire to take a more active role in managing their wealth. There is also less confidence in the markets, and in financial institutions, in general.

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Needless to say, this attitudinal shift has a number of profound implications for the way clients and advisers work together. Here are some conclusions taken from the report, supplemented with several observations of my own.

'Show me my money'

Many wealthy people were taken by surprise by the speed at which markets deteriorated two years ago.

Today, they are determined to never let that happen again. More than ever before, the wealthy want professionals to "show me my money."

They want up-to-date, easy-to-understand portfolio statements and regular progress reports on their financial interests; and they want to see how these align with their goals and objectives. Quarterly or even monthly reviews have become the norm. They expect more frequent contact from their professionals, and a more pro-active approach to events that might affect their portfolios.

Call it a demand for transparency - and it's here to stay.

The personal touch

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Wealthy individuals have always wanted their professionals to have an in-depth understanding of their personal risk profile and financial goals. Today, however, this desire for a personal approach has become even more pronounced.

As they become more educated about financial services, products and strategies, the wealthy have started to demand more specialized advice.

What's more, they are willing to walk away from professionals who can't offer a full range of financial services that are finely tuned to their specific personal financial circumstances.

'Protection first' philosophy

Since the financial crisis, wealthy investors have shifted away from a growth-oriented attitude. Instead, they're now making risk management a priority.

They want to kick the tires of an investment or strategy, and to fully understand the risks before they commit their money. They're looking for full-blown scenario analysis, with verified data demonstrating what might happen in the event worst comes to worst.

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Speaking from my own experience, the wealthy individuals I know are more concerned with protecting against downside risk than ever before, and are particularly attracted to products and strategies that pro-actively limit losses in the event of further market turmoil.

Keeping it simpler

Over the past two years, there's been a lot of talk about the complex, opaque investments that played a large part in the crisis (collateralized debt obligations, mortgage-backed securities, and so on).

As a result, wealthy individuals are now insisting professionals "keep it simple" when it comes to their portfolios.

They want to fully understand what they're investing in - how an investment works, how it makes money, what the tax implications are. They're unwilling to trust complicated financial structures, unproven strategies and black boxes.

Instead, they want detailed disclosure and a demonstrated thorough risk review prior to investing. And if they can't understand a given investment, they're more than willing to keep their money in good-old-fashioned cash.

Partnership, not delegation

The wealthy are no longer content to sit back and let professionals run their portfolios.

Instead of empowering their adviser or other professionals to make decisions for them, wealthy individuals now insist on being in the driver's seat.

Instead of treating the adviser as a guru and deferring completely to their authority and knowledge, affluent individuals now insist on a more collaborative approach. They want a thorough discussion and debate of investment options before any decisions are made. They want to double-check investment strategy and recommendations against other sources, and are willing to ask hard questions about whether the advice they're receiving is realistic and appropriate, given their personal circumstances.

The expectations of the wealthy have clearly shifted - most likely forever. Professionals ignore the significance of this change at their own peril.

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