Performance figures for each account are calculated using time weighted rate of returns on a daily basis. The Composite returns are calculated based on the asset-weighted monthly composite constituents based on beginning of month asset mix and include the reinvestment of all earnings as of the payment date. Composite returns are as follows:

Global HNW Clients Suspicious of Advisors

By Nancy Turner


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Despite the occasional trickle of positive economic data and hints the global economy is on the mend, Merrill Lynch Wealth Management’s World Wealth Report 2010 suggests trust remains an issue for high net worth individuals (HNWI) — on all levels.

According to the survey, only 59% of HNWIs have regained trust in their advisors, and 56% trust their wealth management firm. Even more telling, a mere 17% have confidence in the regulatory bodies following the market collapse in 2008.

A change in the psychology of HNWIs worldwide has clearly caught some advisors off guard, but the distrust may not be as widespread in Canada.

Linda Shick, vice-president and associate portfolio manager at Macquarie Private Wealth in Toronto, says her team didn’t lose any HNW clients during the downturn, and looks to the firm’s asset allocation strategy as a primary factor in that retention.

“If [HNW clients] had an asset allocation [plan in place], they may not have experienced that full downturn,” she says. “So they wouldn’t have distrusted the advisor in the first place.”

David Sung, president and managing partner at Nicola Wealth Management, also questions the erosion of trust.

“The Merrill Lynch statistics may be true for the industry, [but] we’ve thrived [since the financial crisis],” he says. Since the markets collapsed, his firm has grown both in client base and in assets — which have increased significantly from the end of 2008 to $1 billion. “I think that speaks to our clients and their existing trust in us.”

The report also suggests efforts by advisors to recoup losses sustained during the downturn have gone awry, with wealthy clients making emotionally driven decisions that kept them out of riskier ventures last year — and these clients appear set to maintain the status quo.

Shick concedes there was some fine-tuning of portfolios as clients sought out less risky investments, but the overall allocation strategy remained the same.

“We certainly have some clients who became less risk-tolerant. But the trust didn’t go away for us.”

The study further points to three specific demands clients are making of their wealth management firms:

‡ Specialized advice that’s aligned with realistic and appropriate goal-setting, based on a client’s actual risk profile;

‡ Better transparency, simplicity and client reporting, so clients better understand all the parameters of their portfolios, including risks, products and allocations, valuations, performance and fee structures; and

‡ Effective portfolio and risk management, which entails risk-scenario analysis and in-depth research on products and allocations suggested by the advisor.

But maybe Canadian advisors were ahead of the pack — and quick to up the ante when a little extra hand-holding was necessary.

Shick says Macquarie stepped up the communication to clients after the global financial crisis hit. “We did a lot of communication. We do it anyway, but we did a lot more during that time.”

She says her team also reviewed the firm’s asset allocation strategy, and re-emphasized clients’ cash flow and the income protection it provided — and demonstrated risk-protection measures put in place worked. The outcome: client retention.

For Sung, transparency and regular communication with clients were already the most important aspects of the advisor-client relationship, but these were intensified during the crisis.

“We were very quick to provide communication to our clients [when the meltdown hit] — hard copy, emails, gathering seminars for our clients, so we could explain specifically how their investments were doing.”

Perhaps the fact that Canada’s recession was much shorter and less acute than other Western countries contributed to a higher level of overall confidence in Canadian advisors, but it’s certainly only one factor. If wealth management firms in Canada have seen minimal departures from their HNW client base, they must be doing something right.