The affluent investor Insights and opportunities for advisors
Agenda Who are the affluent? What s on their minds? What do they expect from an advisor? How do they want to communicate? 2
Who are the affluent? 3
Who are the affluent? Demographic snapshot Mass affluent (MA) Millionaire (M) Ultra-high-net-worth (UHNW) Net worth* $100K $1M $1M $5M $5M $25M Population (estimated households) 28.97 million 8.39 million 1.11 million Using an advisor 68% 81% 81% Tenure with advisor 3 10 years: 38% 10+ years: 38% 3 10 years: 38% 10+ years: 41% 3 10 years: 35% 10+ years: 49% Average age 59 years 63 years 65.5 years Retired 39% 57% 59% * Not including primary residence. 4
Who are the affluent? Total assets Percentage of investable assets increases with wealth MA M UHNW 38% Investable assets 12% Defined contribution 31% Principal residence 5% Investment real estate 11% Insurance and annuities 3% Restricted stock 55% Investable assets 11% Defined contribution 16% Principal residence 7% Investment real estate 9% Insurance and annuities 2% Restricted stock 68% Investable assets 6% Defined contribution 9% Principal residence 7% Investment real estate 5% Insurance and annuities 5% Restricted stock 5
Who are the affluent? Investable assets Less in cash, more in equities as wealth increases MA M UHNW 38% Investable assets 55% Investable assets 68% Investable assets 13% Fixed income 37% Equities 4% Alternative investments 25% Cash and liquid assets 21% Other/unknown 18% Fixed income 49% Equities 3% Alternative investments 15% Cash and liquid assets 15% Other/unknown 21% Fixed income 59% Equities 2% Alternative investments 13% Cash and liquid assets 5% Other/unknown 6
Who are the affluent? Control of assets Investors control roughly half of all assets themselves MA M UHNW 2012 2013 2014 2012 2013 2014 2012 2013 2014 Assets I control myself with no professional help 60% 55% 49% 46% 49% 40% 59% 46% 48% Assets I consult with an advisor on, but make decisions myself 26% 30% 36% 38% 33% 38% 26% 38% 33% Assets I allow an advisor to handle for me 14% 15% 15% 15% 18% 22% 15% 16% 18% 7
Who are the affluent? Advisor dependency Opportunities for new business with self-directed investors MA M UHNW Self-directed I make my own investment decisions without the assistance of an investment advisor. Special-event I make most of my own decisions but use an investment advisor for specialized needs such as retirement planning, asset allocation advice, or selecting alternative investments. Advisor-assisted I regularly consult with an investment advisor regarding most investment needs, but make most of the final decisions. Advisor-dependent I rely on an investment professional or advisor to make most or all investment decisions. 39% 30% 29% 33% 32% 28% 18% 25% 27% 10% 13% 16% 8
Who are the affluent? Spotlight on younger investors They're more insistent on independent investing: Be prepared to demonstrate your value MA M I have a portion of my investments with an advisor to compare results with my own investing 20% 43% 25% 21% 20% 14% 20% 44% 40% 28% 20% 17% Total Age <35 Age 36 44 Age 45 54 Age 55 64 Age >65 I am relying less on an advisor and making more of the financial decisions without the assistance of a financial advisor 30% 57% 40% 31% 32% 20% 26% 44% 54% 28% 26% 23% 9
Who are the affluent? Take-away points Identify areas of opportunity Make sure you have a complete picture of client portfolios Target event-driven and self-directed investors (2/3 of the market) Become exceptional at demonstrating your value... particularly with younger investors 10
What s on their minds? 11
What s on their minds? Current financial outlook They re relatively optimistic My financial situation is better than it was one year ago I expect my personal financial position will be stronger one year from now MA 2012 2013 2014 37% 48% 52% 49% 46% 48% M 2012 2013 2014 45% 60% 68% 52% 54% 58% UHNW 2012 2013 2014 41% 64% 80% 55% 58% 66% 12
What s on their minds? Retirement outlook They re confident about retirement I fully expect to have sufficient income to live comfortably during retirement I expect I'll be able to retire when I want MA 59% MA 2013 2014 39% 44% M 89% M 2013 2014 56% 62% UHNW 94% UHNW 2013 2014 70% 80% 13
What s on their minds? National concerns Political issues continue to dominate MA M UHNW Political environment 79% 84% 88% Top three Government gridlock 81 85 84 Prolonged economic downturn 83 80 74 Inflation 77 70 65 National debt 74 76 77 Tax increases 76 74 72 Stock market performance 69 69 68 Terrorism 67 62 66 Increased interest rates 53 50 49 14
What s on their minds? Global outlook Clients need education and guidance to combat rampant home bias I am not willing to invest outside the United States MA 74% M 58% 74% UHNW 49% 74% 56% 43% 2012 2013-2014 Spectrem Group. 15
What s on their minds? Individual concerns Health and aging continue to be predominant issues MA M UHNW Maintaining my current financial position 69% 60% 42% The health of my spouse 66 64 60 5 of 7 are health-related My own health 62 60 53 Family health catastrophe 56 51 44 Spending my final years in a care facility 56 56 50 Having someone to care for me in my old age The financial situation of my children or grandchildren 53 47 43 58 58 52 16
What s on their minds? Take-away points Offer education and guidance Assess clients' risk levels Give clients perspective on current events Be a behavioral coach Teach clients about the benefits of global diversification 17
What do they expect from an advisor? 18
What do they expect from an advisor? Services snapshot Currently receive these services MA M UHNW Establishing an investment plan 52% 66% 65% Top five Selecting individual stocks and bonds 54 65 65 Diversifying assets 52 66 64 Creating a written financial plan 47 60 57 Implementing tax-advantaged strategies 47 59 63 Planning for retirement 56 61 56 Establishing sufficient cash flow 47 58 53 Creating an estate plan 38 53 63 Selecting alternative investments 21 25 33 Planning for long-term care 35 43 37 Exercising stock options 26 28 28 Evaluating insurance to determine appropriate coverage 28 29 30 19
What do they expect from an advisor? Services snapshot Plan to seek in future MA M UHNW Establishing an investment plan 15% 10% 6% Selecting individual stocks and bonds 11 6 5 Diversifying assets 12 7 6 Creating a written financial plan 19 10 5 Implementing tax-advantaged strategies 22 14 12 Planning for retirement 13 8 4 Top 3 Establishing sufficient cash flow 17 9 4 Creating an estate plan 30 21 14 Selecting alternative investments 14 9 8 Planning for long-term care 31 22 17 Exercising stock options 10 6 3 Evaluating insurance to determine appropriate coverage 15 12 7 20
What do they expect from an advisor? Long-term care (LTC) Do you have long-term care insurance? 24% 33% 37% MA M UHNW Reasons for not owning LTC insurance It's too expensive I have more pressing financial demands I'm saving for long-term care through other vehicles I don't expect to need it 10% 7% 14% 11% 12% 11% 30% 25% 24% 30% 38% 42% Where did you get information about LTC insurance? Family and friends My primary financial advisor Another professional 14% 18% 20% 24% 30% 30% 31% 39% 32% Mass affluent Millionaire UHNW 21
What do they expect from an advisor? Estate and wealth planning MA M UHNW My financial advisor will be involved in executing my estate plan 24% 40% 43% 2013-2014 Spectrem Group. Whom have you consulted about a wealth transfer plan? Financial advisor 28% 43% 50% Attorney 26% 44% 69% Family 27% 35% 41% Charity 2% 6% 12% Other 2% 2% 4% None 46% 28% 16 22
What do they expect from an advisor? The next generation Be proactive: Make a point to get to know clients' families MA M UHNW I'm planning to introduce my family to my advisor 39% 55% 62% 2013-2014 Spectrem Group. Ideal age to introduce my children/grandchildren to my advisor Under 18 21% 20% 15% 18 25 32% 31% 34% Over 25 19% 22% 26% It doesn't matter 28% 26% 25% 23
What do they expect from an advisor? Spotlight on younger investors They want an advisor who is more likely to relate to them personally MA M It is important that the cultural background of my advisor is very similar to mine 23% 43% 21% 23% 21% 25% 20% 27% 23% 56% Total Age <35 Age 36 44 Age 45 54 Age 55 64 Age >65 23% 25% 24
What do they expect from an advisor? Prospects: Why they may hire you Honesty and transparency trump performance and fees Which factors are most important when choosing an advisor? Honest and trustworthy Provides transparency and keeps me informed Investment track record of advisor Fees or commissions charged Offers products from variety of companies Comes with strong referral or recommendation 94% 95% 96% 91% 93% 94% 91% 91% 89% 83% 85% 87% 78% 77% 73% 71% 68% 63% Mass affluent Millionaire UHNW 25
What do they expect from an advisor? Clients: Why they may fire you Responsiveness and communication trump performance Which of the following would cause you to change financial advisors? MA M UHNW Not returning phone calls in a timely manner 59% 61% 63% Not being proactive in contacting me 49 53 50 Top 5 Not giving me good ideas and advice 48 48 49 Not returning emails in a timely manner 45 46 54 Underperformance compared to market 32 36 32 Advisor focuses only on investments, not my overall financial situation 30 32 28 Doesn t understand my risk tolerance 28 31 32 Losses over a span of 2 5 years 24 24 25 26
What do they expect from an advisor? Take-away points Find ways to exceed expectations Look for ways to broaden services or specialize Tax efficiency, estate planning, long-term care Be proactive in engaging client families Commit to a firm communication policy with clients Hone your pitch to emphasize client relationships more than performance 27
How do they want to communicate? 28
How do they want to communicate? Responsiveness A timely response is hours, not days MA M UHNW Within the hour 1 2 hours 7% 18% 25% 8% 19% 27% 8% 23% 31% 3 5 hours 6 12 hours 16% 11% 27% 18% 11% 29% 21% 12% 33% Next day 40% 38% 30% Next two days 8% 6% 5% Is it acceptable to hear back from someone else in the office? Yes No, I want to speak to my advisor 56% 44% 55% 44% 61% 39% 29
How do they want to communicate? Frequency of contact Overall satisfaction 80% 60% 20 pct. pts. MA Knowledge and expertise of advisor 83% 17 pct. pts. 66% Frequency affects clients' satisfaction... and their assessment of you Quarterly 81% Quarterly Semiannual/ annual 53% M Quarterly 86% 28 pct. pts. 25 pct. pts. Semiannual/ annual Quarterly Semiannual/ annual 61% Semiannual/ annual 80% 68% UHNW 81% 72% 12 pct. pts. 9 pct. pts. Quarterly Semiannual/ annual Quarterly Semiannual/ annual 2013-2014 Spectrem Group. 30
How do they want to communicate? Advisor teams They prefer one-on-one interaction, but may settle for teams of three or less How many advisors should make up a team? I prefer one person that I consistently deal with MA M UHNW 67% 66% 55% 28% 22% 20% 32% 33% 29% 31% 39% 36% I prefer one primary advisor plus supporting team members I prefer a team approach 27 28 40 6 5 5 12% 9% 9% One Two Three Four or more One Two Three Four or more 31
How do they want to communicate? Effective communication Client communications leave room for improvement MA M UHNW Tips to improve... Face-to-face meetings Excellent Satisfactory Poor 57% 39 4 62% 35 3 63% 32 5 Agree on meeting agenda ahead of time Ask continual discovery questions Listen more, talk less Newsletters Excellent Satisfactory Poor 19% 71 10 19% 71 10 18% 68 14 Use recurring columns to help set expectations/gain loyalty Include infographics Interview experts for fresh content Blog Excellent Satisfactory Poor 5% 50 45 3% 50 47 5% 45 50 Post consistently Vary the media Invite guest bloggers 32
How do they want to communicate? Virtual communication They're ready to video chat now, texting still on the horizon I want to video chat with my advisor 49% MA 56% M 57% UHNW I want to text with my advisor 13% 12% 11% Millionaires under age 44 who want to text with advisor: 40% MA M UHNW 33
How do they want to communicate? Social media Social media use is prevalent at all ages 79% 67% 62% 57% 49% 55% 58% 55% 43% 31% 33% 28% 20% 23% 16% 11% 6% 11% 9% 6% 43% 38% 34% 29% 19% Facebook LinkedIn Twitter Google+ YouTube Under 35 Age 36 44 Age 45 54 Age 55 64 65 and over Users are strongly engaged Mass affluent Millionaire UHNW 65% check in at least once per day 55% check in at least once per day 49% check in at least once per day 12% follow a financial commentator 24% follow a financial commentator 23% follow a financial commentator 34
How do they want to communicate? Social media Likelihood of getting financial or investment information from social media platforms Mass affluent 0 50 100 13.25 17.64 22.94 26.81 29.08 Millionaire 0 50 100 11.63 19.15 25.08 26.59 29.01 UHNW 0 50 100 10.00 16.79 21.50 22.35 22.85 0 (not very likely) 100 (very likely) 35
How do they want to communicate? Take-away points Improve client interactions Scale your practice to devote more time to client interaction Look for opportunities to improve client communications Consider accommodating virtual communication Google yourself. How strong is your online presence? 36
Final take-aways Engage in client discovery Have a complete picture of client assets Find ways to broaden services or specialize Look beyond retirement planning Persuasively demonstrate your value Exceed client expectations Be a behavioral coach Provide education and guidance Address top-of-mind issues Focus more on relationships Hone your communication strategy Dedicate the time/resources for successful client interactions Establish a firm client communication policy Improve content Connect with the next generation Respect their confidence: collaborate, don't dictate Provide flexible communication options Stay apprised of trending topics on social media 37
How Vanguard can help Demonstrate your value: Advisor s alpha tool kit Quantifying your value Client guide: How your advisor adds value Improve your practice: Retaining heirs: Connecting with the next generation Connecting with female investors Social media for advisors Leverage expert commentary: Vanguard Blog for Advisors Economic outlook Vanguard advisor briefs Streamline investing: Vanguard investment tools ETF model portfolios Portfolio Analytics tool Adding passive to active scenarios Educate clients: Full series of client guides Caring for an elderly parent Investment basics Social Security 38
Important information For more information on Vanguard funds and Vanguard ETF Shares, visit advisors.vanguard.com or call 800-997-2798 to obtain a prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing. Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market with the assistance of a stockbroker. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling. All investing is subject to risk, including possible loss of principal. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. Investments in bonds are subject to interest rate, credit, and inflation risk. Investments in stocks and bonds issued by non-u.s. companies are subject to risks including country/regional risk and currency risk. Diversification does not ensure a profit or protect against a loss. 2015 The Vanguard Group, Inc. All rights reserved. U.S. Patent Nos. 6,879,964; 7,337,138; 7,720,749; 7,925,573; 8,090,646; and 8,417,623. Vanguard Marketing Corporation, Distributor of the Vanguard Funds. PID535119DOLU01/09/2016_CE 39
Who are the affluent? Insurance products Product ownership MA M UHNW Life insurance 59% $96 62% $226 60% $636 Fixed annuities 19% $58 25% $184 27% $524 Variable annuities 15% $63 22% $200 29% $665 Products, mean value 2013-2014 Spectrem Group. 40
Who are the affluent? ETF/Mutual fund ownership ETFs 12% 16% 22% 30% 25% 52% 2009* 2013 10% Domestic 6% International 2009* 2013 20% Domestic 10% International 2009* 2013 34% Domestic 18% International *No breakout. Mutual funds U.S. stock mutual funds Municipal bond mutual funds 59% 38% 70% 62% 62% 70% 20% 12% 28% 24% 25% 24% 2009 2013 2009 2013 2009 2013 2009 2013 2009 2013 2009 2013 Other U.S. bond mutual funds International/foreign mutual funds 20% 12% 28% 24% 25% 24% 25% 15% 40% 31% 41% 41% 2009 2013 2009 2013 2009 2013 2009 2013 2009 2013 2009 2013 2013-2014 Spectrem Group. 41