PriceMetrix Inc.

PriceMetrix Inc.

May 08, 2013 09:00 ET

New Report from PriceMetrix Profiles the Characteristics of High Net Worth (HNW) Investors

HNW Clients are adding fee accounts, but not abandoning transactional accounts, and seek a fair price, not necessarily a low price

TORONTO, ONTARIO--(Marketwired - May 8, 2013) - PriceMetrix, the first choice in practice intelligence solutions for retail brokerages in North America, offers new insight into high net worth clients. In a report released today that draws on its aggregated database of 7 million retail investors and 500 million transactions, PriceMetrix finds that large clients are adding fee accounts more often than other clients and are seeking fair fees but not necessarily the lowest ones. The report is intended to help financial advisors and their firms understand, attract and better serve high net worth clients.

"Talk about landing a whale is commonplace with Financial Advisors, but there's little agreement when defining high net worth clients," commented Doug Trott, President and CEO of PriceMetrix. "We prepared this report to help advisors better understand their needs, tendencies and characteristics when courting them."

Relying on its aggregated data, PriceMetrix finds that 13% of clients have more than $1 million in invested assets with their financial advisor, and 5% have more than $2 million. PriceMetrix chose the $2 million mark as an appropriate definition of today's high net worth client. For context, the median household with a financial advisor has $210,000 in investable assets.

PriceMetrix data reveal the typical high net worth household has 44% of its invested assets in equities, compared to 37% for households with $250,000 to less than $500,000 in assets. Further, the average HNW household has 17% of its assets invested in mutual funds (compared to 33% for households with $250,000 to less than $500,000 in assets) and 28% in fixed income (compared to 15%).

Looking at product mix, HNW households are more likely to hold transactional accounts than households at other asset levels: 92% of households with $2 million or more in assets hold transactional accounts compared to 85% of households with $250,000 to less than $500,000 in assets. High net worth households are also more likely to hold fee accounts. 51% percent of HNW clients hold fee accounts, while only 36% of households with $250,000 to less than $500,000 in assets have fee accounts. 43% of high net worth households are holding both fee and transactional accounts. Interestingly, HNW households are less likely to hold retirement accounts: 69% of HNW households hold retirement accounts compared to 75% of households with $250,000 to less than $500,000 in assets.

"There's an increased tendency among high net worth investors to spread their wealth across account types and providers," noted Mr. Trott.

A common belief in wealth management is that HNW clients tend to pay lower fees (on a percentage basis). This belief is true on average, but it is not the complete picture. The median Revenue on Assets for fee-based accounts for high net worth clients is 0.76%. However, the range of fees is wide. A quarter of HNW clients pay 0.45% or less in RoA, while, at the other extreme, one in four pays 1.06% or more. In fact, one in ten clients pays 1.45%. The same trends are present among transactional accounts. The median discount from scheduled commissions is 25%. One in four HNW investors, though, receives no discount at all. On the other side of the scale, one in four gets at least a 50% discount.

Further, common wisdom is that small households hold the potential to become big ones. This is rarely true. PriceMetrix data show that just 3% of households with less than $500,000 in assets become HNW clients over the following five years. Only 7% of households with less than $1 million become high net worth investors over five years.

"The number of times small households become high net worth clients is simply too few to merit a significant amount of advisor attention," said Mr. Trott. "Advisors seeking to grow should concentrate on finding, not manufacturing large clients. The vast majority of high net worth clients were high net worth from the beginning of their relationship with their advisor."

One lever that influences the number of high net worth households in a book and that is readily within the control of advisors is the proportion of small households. In order to attract high net worth households, one needs to make room for them. In this respect, keeping the percentage of small households in one's book to less than 20% stands out as a key metric: the number of high net worth households and the production derived from them decline significantly above this point.

Furthermore, while high net worth households do exhibit some price sensitivity, the data indicates that one can price oneself out of consideration by pricing too high; at the same time, discounting too much can erode perceptions of value. Both overpricing and underpricing results in less success with high net worth households.

"Advisors can't control how much experience they have but there are other things they can do to attract high net worth clients," commented Mr. Trott. "Our data suggest that deeply discounted prices and a high concentration of small households reduce the likelihood of attracting high net worth households."

The complete PriceMetrix report can be found here: www.pricemetrix.com/big-fish/.

About PriceMetrix

PriceMetrix is the first choice in practice intelligence solutions for retail brokerages in North America. We help wealth management firms enhance revenue growth, by enabling advisors to identify and action otherwise lost revenue opportunities. By combining industry know-how with powerful aggregated market data, we help our clients increase overall firm profitability.

PriceMetrix directly measures aggregated data representing more than 35,000 full service investment advisor books, 7 million investors, 500 million transactions, 3 million fee-based accounts, 7 million transactional accounts and over $3.5 trillion in investment assets. The data is refreshed on a continual basis to ensure maximum accuracy and relevance. PriceMetrix combines its patented process for collecting and classifying data with proprietary measures of revenue, assets, and households to create the most insightful and granular retail wealth management database available today.

Founded in 2000 and headquartered in Toronto, Ontario, we service a notable range of retail wealth management firms within the United States and Canada. To learn about why our clients love us, please visit www.pricemetrix.com or call and email us at 1-866-955-0514 and info@pricemetrix.com.

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