The 20 Rising Stars of Wealth Management - 2007 - (Page 5) SUN SHINES ON WEALTH MANAGERS, DESPITE ROCKY MARKETS BY JESSICA SOMMAR AND CARRIE THORSON ALTHOUGH MARKETS ARE swinging dizzily from one day to the next under the sway of the subprime meltdown, wealth managers can still rely on strength in numbers. As wealthy baby boomers age, a lot of money is being liquidated and moved around in preparation for retirement. There is a lot of money looking for help in investing. A recent study reports that assets under management for the average Securities and Exchange Commission-registered investment advisor will jump 256% to $1.6 billion in five years, from the $449.6 million recorded at the end of 2006. The growth, according to the study released in August by Moss Adams, a Seattle-based accounting and consulting firm, is driven by an expected increase of $5 trillion in investible assets by 2012 predicted by the Federal Reserve Survey of Consumer Finance. The Moss Adams study conducted for Pershing Advisor Solutions, concludes that the $5 trillion represents a $35 billion revenue windfall for RIAs, who on average charge a fee of 0.7% on assets. Additionally, wealthy retail clients are more knowledgeable than ever before and new and improving investment and money management products are cropping up everywhere. ALTERNATIVE INVESTMENTS The wealthy showed an increased interest in alternative investments over the past year. Top firms such as Lehman Brothers and U.S. Trust grew their alternatives divisions to parallel the trend. Alternatives include structured products, REITs and derivatives as well as hedge funds and private equity. Still, wealthy investors lack a full understanding of these sophisticated products and tend to stick with more familiar alternatives such as private equities and hedge funds. Indeed, a recent study by Spectrem Group showed this group of investors has been shying away from risk over the last few years. Their survey of more than 526 U.S. households with a net worth of $5 million and 3,000 households with $500,000 or more in 2006, revealed affluent investors were becoming more risk averse. The percentage of these households willing to invest in more high risk investments declined from 68% in 2003 to 65% in 2005 to 59% last year. AUGUST 2007 Source: Spectrem Goup “There is just not a lot of knowledge in these products and it has translated into some fear of those products. They appear risky,” explained Tom Wynn, director at the consultancy. “As there is more education, there would be a higher degree of interest. That information,” he added, “has to come from the advisor.” INTERNATIONAL INVESTING “Everybody is all about Asia,” said a Goldman Sachs broker. And not just investing there. “Our high-net-worth guys over there are making three times as much as our guys here,” he added, referring to high-net-worth retail brokers and wealth managers serving the population there. The Spectrem Group study shows that 40% of wealthy investors currently buy internationally, with almost one-third planning to increase the international aspect of their portfolios. Moreover, in another Spectrem Group report, a breakdown shows that nearly half of all the affluent they surveyed are thinking of investing in Asia. If you include India in the mix, that rises to 57%. “China with its huge population is a hot bed for international investing. There is so much potential in China,” explained Spectrem’s Wynn. “Korea with the up and downs that we’ve had there, escalation and [de-escalation] of fears, opens up an opportunity for people that maybe now is a good time to get in there.” However, Wynn added, those countries are all hot primarily because they are in the news a lot and that drives the increased interest. His surveys get “top of mind” responses, for what really appeals to respondents at that moment. If Indonesia suddenly gets more in the press because of business ventures, stability in government, or the like, they could also show up in our survey, Wynn explained. WEALTH MANAGEMENT RISING STARS 5
For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.