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Making a (financial) marriage work

Sebastian Dovey

To rephrase a much-used saying, the best relationships are those that stand the test of time. One trick to securing an enduring relationship is a mutual desire to constantly focus on what brings the best out of both sides and if that needs adjustment then there should be a willingness to adapt.

Such a statement could be drawn from a page out of a marriage counselling book. However, it is equally important in the context of a financial relationship between a wealthy client and their adviser.

For a long time, the construct of the adviser/client relationship was set by simple laws of supply and demand. Good advisers able to supply coherent investment advice and access to the markets for high net-worth clients were in short supply.

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Demand, fuelled by swelling ranks of wealthy individuals, was strong and growing. So clients paid handsomely for expert advice that was calculated as a percentage-based fee of the total assets they handed over to be managed. To an extent it was an arranged marriage of mutual convenience.

Today, information flows freely and digital platforms have thrown open the market gates for a new profile of investors.

The supply of financial information has been democratised. Access to markets, particularly online, is much more available if you have the capacity to shop around. There has also been a recalibration of the cost of investing for private clients, so it is aligned to the return.

Thus, clients seeking a financial relationship arrive better informed and with a more exacting set of demands. Rocked by financial scandals they are more sceptical than before, and are demanding robust evidence of the value advisers add. The financial marriage most want today is a more collaborative, two-way relationship that is less a case of expert and novice and more of a partnership.

This is a subtle but very significant shift in the context of relationships and it matters to the financial advice industry.

Historically, high net-worth individuals entrusted an adviser with improving their financial situation; indeed, 73 per cent of clients over the age of 60 still cite that as the main responsibility of their relationship manager. They became comfortable in the relationship – and with good reason – and typically did not demand more. In effect, it became a relationship of benign co-habitation.

Yet among the under-40s a shift is occurring. Just 48 per cent of these individuals hold the adviser responsible for improving their financial situation and almost a third (29 per cent) are looking for a wealth mentor (compared to just 11 per cent of over 60s). They are looking for more from the financial marriage. They want to see clear progress on outcomes. They also want their relationship to be more equitable. The result is that just 30 per cent of European HNWs now say that they use professional advisers and usually follow their advice and recommendations. While 19 per cent identify as self-directed investors and 21 per cent say they only use professional advisers for information and advice concerning more complex investments.

Ultimately, investors are taking a more active role in managing their money and they are equally keen to proactively track performance.