The Institute for Innovation Development recently talked to David M. Thompson, managing director, affluent practice at Phoenix Marketing International—a marketing consulting and advanced analytical market modeling firm. Their Wealth & Affluent Monitor provides continuous intelligence regarding affluent and high-net-worth households’ investment, financial and lifestyle behaviors, needs and attitudes. Their research has revealed significant changes in the affluent marketplace that have major implications for financial advisors going forward.

This article has been published on Financial AdvisorSeekingAlpha, HarvestExchange, Institute blog

Bill Hortz: I see that Phoenix has been conducting in-depth research in the U.S. affluent investor marketplace since 2003. Please tell us about your Wealth & Affluent Monitor research platform and how you develop your market intelligence.

David Thompson: Our Wealth & Affluent Monitor is a marketing research platform for obtaining, analyzing and delivering ongoing tactical and strategic intelligence about wealthy investors to our clients in the wealth and asset management, banking, insurance and other channels.

Our syndicated service completes over 900 online questionnaires monthly with qualified affluent and high-net-worth households in the U.S., and about 1,500 semi-annually in Canada. We provide a range of services to our clients throughout the year, including monthly investor sentiment updates, quarterly and annual reports, adding proprietary content to our questionnaires, and analysis support.

The content of our questionnaires is very comprehensive, and includes all of the key topics in wealth management (portfolio composition, asset allocations, use, strength and depth of relationship with advisors and providers, attitudes towards wealth and investing, new digital channels, and extensive demographics) as well as credit and debit card usage and behaviors.

Hortz: What are the different affluent market segments you have been following and monitoring? Have you seen major trends or changes in any of these categories of affluent investors over recent years?

Thompson: Our core affluent and HNW segments include: emerging affluent: younger households (<age 45) who have not yet accumulated high levels of wealth (<$250k investable), but have the income ($125k+) to move into the higher wealth categories over time; mass affluent (households with $250k-$999k investable); and HNW ($1mm+ investable)

We also track other segments including penta-millionaires ($5mm+ investable), affluent women decision-makers, affluent generations including millennials, and affluent business owners.

Regarding trends in affluent segments, yes, we are seeing some significant shifts that are impacting the industry. With their embrace and comfort with technology, younger, emerging affluent have very different expectations regarding an advisory relationship than their parents. Emerging affluent expect a high degree of personalization in advice, and typically seek a more goals-based or holistic approach from their wealth management firm, employing a more diverse array of delivery channels. Many mass-affluent investors are struggling with advancing age and finding that they are not prepared financially for retirement.

Hortz: What other major trends or emerging categories do you see developing and what are the implications for advisors?

Thompson: We are seeing affluent investor expectations for advice shifting to a more financial wellness orientation, and advisor performance will likely be based on a broader client experience measurement. Another trend involves the importance of transparency as a cornerstone of building client trust. Out of seventeen elements in the client/advisor relationship that are measured in our questionnaire, “providing transparency in interactions” emerged as the leading driver of client trust in their financial institution. And, from an advice delivery perspective, we believe banks continue to be in jeopardy of continued migration of younger investors to other channels.

Hortz: What is the difference between the term “next-gen” investor and the newer “selective” investor category you have determined?

Thompson: There is considerable overlap between the so-called “next-gen” and what we are calling the “selective” investor. The selective investor is neither a do-it-yourselfer nor a validator. A key hallmark of the selective orientation is a strong need to take control over their investments. And they are not a small or select group of investors: collectively, they represent over 60 percent of affluent households and over 80 percent of young, “next-gen” affluent investors.

Besides their need for investment control, there are other hallmarks of the selective investor: They are very actively involved in the day-to-day management of their finances. Selective investors are not opposed to getting professional advice; in fact, most use or have used a professional financial advisor for investment guidance or specific services. Attitudinally, they are risk-takers and open to new investment opportunities. They also tend to be less trusting of financial institutions, which goes hand-in-hand with their need for investment control.

Hortz: Why do you refer in your research to the latter as the selective “movement” and feel that they will fundamentally disrupt the traditional advice orientation model?

Thompson: The selective investor movement is, fundamentally, built on a fintech foundation. We believe they will disrupt the traditional advice orientation model in the following ways:

One, the selective investor expects to have the tools available from professional advisors to enable them to self-manage selected services such as stock or mutual fund selection or financial planning. And robo-advisors will no doubt be part of the self-management paradigm.

Two, they also expect tools that will enable them to take a holistic view of their finances and link all of their accounts.

Three, they place high importance on having access to their investments 24/7 through multiple devices, including mobile.

Four, the selective investors will turn to multiple sources of advice, including professionals, peer groups and social media. They have used a more diverse array of advisor channels than delegators, including bank-based advisors, accountants, online brokers, and insurance agents or brokers.

Five, they will typically conduct their own research themselves before speaking with an investment professional.

Six, selective investors will also expect to use advisors for non-traditional services, such as debt and credit management, insurance or updating a will.

Hortz: What is your best advice to advisors about how to respond and transition their practices to these leading affluent market trends?

Thompson: Clearly, financial advisors must take steps to better understand the needs of the next-gen and selective investor, the impact they will have on their practice, and the resources they will need to adapt and thrive. Advisors will need to broaden their product and service offerings, along with adopting a more holistic, multi-channel delivery platform, or ecosystem. Whatever you call it, wealth managers can no longer go it alone, and to have a sustainable business model, advisors must be willing to forge partnerships to meet the constantly evolving and diverse needs of the modern investor.