Unlocking Real Value Blog

Are You an Alpha Advisor?

At the end of March I blogged about the rebellion of wealthy investors, and the growing trend of these investors hiring multiple advisors. (See March 28th blog entitled “The Wealthy Rebel – Advisors Beware.”) The issue continues to get more and more press as additional studies with similar results continue to be published.

If you aren’t an Alpha advisor – beware – your business might be at risk. Unless you want to focus on smaller investors – those that tend to be a lot more fee-sensitive and who don’t have enough assets to hire multiple advisors – your marketing strategy MUST include a way to position you as the leader of the group of advisors you clients are likely to hire. The Alpha advisor acts as the client’s financial hub, is aware of the other relationships, has the ability to report on these other assets (and is given access to the information) and is likely to take a holistic approach – having the capability to address the client’s most in-depth financial issues.

The latest study I referenced above was released by State Street Global Advisors and Knowledge@Wharton. 55% of respondents indicated that their primary advisor was unaware of the decisions and performance of their other advisors. What does this mean? It means opportunity for advisors who can explain the downside to such a isolationist strategy. Without someone overseeing the client’s entire investment portfolio, investors who are trying to protect themselves by diversifying across advisors are actually increasing their risk – overlapping sector or individual investment exposures for example could result in an overall portfolio which does not match the client’s investment goals and risk tolerance levels.

In addition to being able to charge for oversight – adding a new revenue stream to your practice – you greatly increase your chances of keeping clients by being the Alpha advisor. But you won’t know the answer to the question of whether your clients have multiple advisors unless you ask – why not make if part of your regular quarterly meeting/referral process?

One other interesting result from the study to keep in mind – the best practices of Alpha advisors usually includes transparency of fees, open architecture and solid rationale and documentation to back-up their recommendations.

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