Advisers must dive deeper into client behavior: study

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.”

The broader industry shift, the study found, was sparked in part by wealthy investors who lost trillions of dollars in the financial crisis and global recession.

Those investors are more risk-averse, but also more intent on reaching life goals rather than specific investment targets, the study found.

Wealth management firms have responded by introducing clients to more product and risk-management specialists who can address “emotional triggers that are causing clients to remain cautious about investing,” the study said.

In other words, brokers must serve as counselors, too.

“While dollars may be an important part of it, if we can demonstrate to our client base that we understand their true motivation and that we can help them stay the course, that’s a means to an end,” LaMothe said.

Firms are also increasingly dividing clients by risk appetites, rather than lumping together customers by account size or dividing them by the services they use.

Analysts said such moves are critical in the wake of the financial crisis if brokerages seek to distinguish themselves from rivals.

“It’s now about the value they can provide,” Schmitt said. “Investments aren’t doing great, and trading isn’t really a unique service anymore. The value they can provide is being the financial quarterback for a client.”

Reporting by Joe Rauch; Additional reporting by Joseph A. Giannone; editing by John Wallace