Advisers must dive deeper into client behavior: study

Tue Jun 22, 2010 2:46pm EDT
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By Joe Rauch

CHARLOTTE, North Carolina (Reuters) - Wealth management firms worldwide need to stop the financial equivalent of speed dating and instead get to know their clients better.

Financial advisers are offering labor-intensive services once reserved only for their richest clients, leaving behind the traditional mass-market brokerage approach that long defined the industry, according to the latest Merrill Lynch-Capgemini world wealth report.

Driving the change is behavioral finance research, the study of the emotional and social forces behind an individual's money decisions. The new approach is increasingly part of the industry's strategy of courting and retaining $39 trillion controlled by millionaires worldwide.

"It's definitely where the industry's going," said Sophie Schmitt, a wealth management analyst at Boston-based Aite Group Inc. "It's a longer-term relationship that's not about selling something at every single meeting. It's more about life planning."

Firms are bringing risk analysis specialists to client meetings, developing new investments that meet clients' changing appetites, and re-training advisers to plan around life goals rather than vague investment targets around a select group of stocks or bonds.

Firms will vary in how deeply they adopt the measures, depending on their client base and growth goals, the study projects, but all wealth firms are moving away from the traditional brokerage model.

The research provides some insight into Merrill Lynch, the third-largest U.S. brokerage, which is several years into adopting this advisory approach, Lyle LaMothe, head of the bank's U.S. wealth management operation, told Reuters.

"We refocused all our training here to align around life cycles rather than market cycles," said LaMothe. "There are events that happen regardless of where the markets are. It's life."   Continued...