Merrill Lynch Global Wealth Management and Capgemini Release 13th Annual World Wealth Report

24 Jun 2009

The global economic and market downturn has shaken the trust and confidence that high net worth individuals (HNWIs) placed in markets, regulators, financial institutions, and the very principles of portfolio management, according to the 2009 World Wealth Report issued today by Merrill Lynch Global Wealth Management and Capgemini, a global consulting services firm. Market losses and diminished confidence, forced many HNWIs to shift their wealth towards safer investments across multiple institutions as a means of reducing risk. “Our research shows that while client satisfaction remains a top priority, many wealth management firms and advisors may not fully understand what drives clients to leave or stay,” says Bertrand Lavayssière, Managing Director Global Financial Services, Capgemini. “In addition, firms may be misjudging how satisfied their own advisors are with certain service and support areas. Wealth management firms should reevaluate current capabilities to ensure simplicity and transparency, demonstrate value as defined by clients and prospects, and develop new products and services to retain and attract clients in today’s environment.”

To stem client attrition and strengthen retention, advisors and wealth management firms will need to pursue more open and transparent client communications, provide enhanced information on risk factors, and increase levels of client service. The report shows more than 25 percent of HNWIs withdrawing assets or leaving their wealth management firm altogether in 2008, demonstrating the heightened need for wealth management firms to reassure clients, and focus on increased transparency and simplicity to mitigate any gaps in understanding between clients, advisors and firms. The World Wealth Report is based on statistically significant samples obtained through surveys of more than 1,350 advisors, more than 200 high net worth clients and more than 60 senior executives at wealth management firms. Findings show that service quality, online capabilities, and risk management, particularly in the areas of reporting and transparency, are key to driving increased client retention going forward. Perception Gap Exists between Advisors and HNWIs in Retention Areas Advisors generally understand the top drivers of client retention—a full 88 percent of surveyed HNWIs and 87 percent of surveyed advisors say service quality was “very important” and a key driver of retention.

However, advisors surveyed underestimated the importance of some highly influential retention drivers for clients. This perception gap leaves room for improvement in the following areas:

 Online access and capabilities were deemed “very important” by 66 percent of clients, but only 32 percent of advisors — a 34 percentage point gap;  Statement and reporting quality had a 24 percentage point gap;  Risk management and due diligence capabilities had a 19 percentage point gap;  Fee structures showed an 18 percentage point gap.

More Holistic Risk Assessments can Reassure Clients

Of HNWIs surveyed, 73 percent said risk management and due diligence capabilities were an important factor in their decision to stay with their firm in 2008, while only 54 percent of advisors said it was a reason clients did and would stay. By developing more robust and transparent risk management capabilities, wealth management firms can make substantial progress in restoring client confidence. More holistic client risk assessments can help clients and advisors make more astute decisions about investment allocations. This could involve drawing on elements of behavioral finance, scenario analysis, and deeper diversification principles to help clients understand, for example, the actual dollar impact of a confluence of events like loss of income and unexpected market losses.

Enabling Advisors is also Key to Delivering on Business Goals From the surveyed advisors who voiced dissatisfaction with the service and support enablement provided by their firms, fully 90 percent lost clients in 2008. It is clearly in the best interests of firms to make sure advisors are satisfied with the core service components of advisor enablement.

Advisors were most dissatisfied in 2008 with their firms’ communications and directives during the financial crisis, as well as with client online and statement reporting capabilities. The priority advisors gave to these support areas is not surprising, given the clamor for transparent, accurate and timely information during the year’s unprecedented events.

"The events of the last year have fundamentally changed the way clients think about investing. Many have to re-examine their strategies and portfolios and reset their expectations to account for a slower growth environment" said Dan Sontag, president of Merrill Lynch Global Wealth Management. "Those firms who truly understand what their clients have been through, and can invest in the resources and tools to help them move forward, will have the greatest opportunities to succeed in the future

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