Luxury Institute News

November 17, 2015

Family friction perceived as biggest wealth management obstacle: report

Luxury Daily
November 16, 2015
By: Forrest Cardamenis

Family disputes are the largest hurdle for achieving financial goals, but communication can make things easier, according to a new report by SEI Private Wealth Management and Scorpio Partnership.

Working through financial decisions in isolation or failing to communicate effectively can disintegrate a family’s wealth far more quickly than it was accrued. As the luxury market continues to globalize and make the economy more volatile and interdependent than ever before, ultra-high-net-worth individuals will need to be smart and confident with money.

“[Wealth management is] a fundamental skill of survival,” said Jeff Ladouceur, director, SEI Private Wealth Management. “There is a secret sauce of academic skills and taught values on how to manage money, how to put it towards a good purpose or to continue to develop it.

“Without those skills, the money can be misused or become detriment, instead of an opportunity or jumping off point for success,” he said.

“Breaking The Taboo” looks at 275 individuals averaging $18 million in assets and $616,000 in annual income and their attitudes toward finance management. Among the participants, 42 percent are employees, 23 percent are entrepreneurs and 13 percent are retired.

Alone in the dark
The report identifies three major solutions to problems that impose proper wealth management: engaging more often to end conflict festering beneath the surface, introducing heirs to the decision-making process at a younger age and making decisions together.

When it comes to personal finance, people have confidence in themselves rather than family. Forty-three percent of participants said family interference stops them from achieving financial goals, compared to around one-third percent blaming their investment skills or lack of sufficient time and information.

mercedes family
Family prepares for a road-trip; image courtesy Mercedes

Accordingly, one-third said they must make financial choices alone, with the number increasing along with household net worth and higher for women and employees. However, family friction is often an indication of insufficient communication in the past, meaning more conversation and trust.

This isolationist mode of thinking might be an effect as much as it is a cause.

Only about 40 percent of UHNW parents involve children 19-years-old and under in family wealth issues and 80 percent say their heirs do not know how much they will receive. If this was true of the previous generation as well, the exclusion might have contributed to a reluctance to involve others.

Similarly, only 20 percent have given their children training or education on wealth management – this despite 85 percent believing that with great wealth comes great responsibility.

Affluent family
Affluent family

Fifty-eight percent of respondents are male while only 42 percent are female, a result of the lack of gender parity among UHNW individuals. Within the UHNW community, men and women behave differently: one-third of women lack confidence in their financial plan compared to just a quarter of men, but men are also only half as likely to trust family in financial matters.

By setting goals, teaching children how to understand and manage money and getting family and professional wealth managers involved in important decisions, UHNW families can take better care of both wealth and family.

Breaking taboos
Other studies indicate changes in wealth management are on their way.

Millennial investors have different preferences compared to their baby boomer parents when it comes to wealth management, according to a Luxury Institute report from August.

While baby boomers and older generations prefer to work with full-service brokerage firms, wealthy millennials and members of Generation X are showing an increased preference for working with private advisors. Independent financial advisors can offer a more individual approach that is often appealing to younger investors who are accustomed to personalization.

An SEI report from June suggests the same.

When the world’s emerging wealthy population is looking for financial advice, they are preferential toward relationship managers over product specialists, according to a report by SEI.

In the United States, high-net-worth consumers show an even higher affinity for relationship managers, favoring them over specialists two to one across all areas of investment. As regulations place restrictions on the client-advisor relationship and digital solutions appear poised to replace personal contact, this report shows the continued importance of human interaction in the investment process.

“People are doing more values-based than just budget-based financial education,” Mr. Ladouceur said. “People who are doing it right, the education is values-based.

“This means people are learning not only the basics of what they can spend and what they have, but also learning the relation between money and their family’s values,” he said. “Therefore, educated decision are made not on affordability but on alignment with need and values.”


October 26, 2015

Some brands fail to reach women

October 26, 2015

NEW YORK: When it comes to marketing to affluent women, some brand categories are notably more successful than others and have even improved the perception of their marketing efforts over the past three years, a new survey has shown.

Luxury Institute, a New York-based specialist research firm, ranked industries based on their success marketing to women with a minimum annual household income of $150,000 and then compared the results with a similar survey it conducted in 2012.

It found the top industries considered to be doing a good job marketing to women are clothing (75%), shampoos and conditioners (74%), fragrances and cosmetics (72%) and shoes (72%).

Compared to 2012, each of these categories achieved a wider share of women who view their marketing efforts favourably, but the jewellery and watch sector saw the biggest improvement, rising to 62% positivity from 53% in 2012.

However, the survey – which did not include a sample size – also identified industries that continue to lag in their marketing to affluent American women.

Among industries that these women say are faring badly in their marketing efforts are insurance, liquor, electronics and banks, each of them gaining approval ratings of less than 5%.

In addition, just 6% of respondents view the car industry favourably and other poor-performing sectors include real estate (7%), home improvement (8%), credit cards (13%) and pharmaceuticals (15%).

“Women maintain huge economic power and it is a necessity for companies to step up marketing and how they connect with affluent women regardless of industry,” said Milton Pedraza, CEO of the Luxury Institute.

“Research that includes speaking directly with these women about what appeals to them and what turns them off removes much of the guesswork in making marketing decisions,” he added.

Part of that research could involve marketers taking account of the age profiles of their target audience as the survey also revealed that older women are more receptive to marketing activity.

Affluent women aged 45 to 64 generally feel that brands across industries are doing well when marketing to them, the report found, but this positive response drops among younger generations.


August 14, 2015

Millennials’ wealth management preferences differ from boomers: report

Luxury Daily
By: Kay Sorin
August 14, 2015

Millennial investors have different preferences compared to their baby boomer parents when it comes to wealth management, according to a new report by Luxury Institute.

While baby boomers and older generations prefer to work with full-service brokerage firms, wealthy millennials and members of Generation X are showing an increased preference for working with private advisors. Independent financial advisors can offer a more individual approach that is often appealing to younger investors who are accustomed to personalization.

“Independent financial advisors are able to do more things for their clients, because they are not working for a firm that has rules and regulations about what they can or can’t do,” said Milton Pedraza, CEO of Luxury Institute, New York. “The IFA is the fastest growing industry in wealth management.”

Different strokes
Luxury Institute surveyed investors earning at least $150,000 and found that at least 46 percent used some form of advisor to help them manage their finances. Among respondents aged 65 and over, this number rose to 59 percent.

Michael Kors affluent couple car
Wealthy millennials are inclined to prefer independent wealth managers

Respondents varied in their preferences for an independent wealth manager versus a full-service brokerage firm such as Morgan Stanley or Merrill Lynch. Interestingly, this preference strongly correlated with age.

“A full service firm doesn’t have a fiduciary relationship with the client, meaning that they are not legally obliged to serve the client’s interests only,” Mr. Pedraza said. “They can recommend an investment in which they will make a bigger commission.”

Millennials and members of Generation X and Y, defined as those 45 and younger, showed a significant preference for independent wealth managers compared to full-service brokerage firms. Thirty-eight percent chose to work with individual advisors while 27 percent preferred a big brokerage firm.

Michael Kors case
Millennials have access to more information and are well informed

Investors over 65 were much less likely to work with an independent advisor and only 28 percent reported doing so. They strongly preferred to go full-service with 56 percent using large firms to manage their wealth.

This difference between the generations is likely a result of their upbringing. Baby boomers were raised to expect to work with a big brokerage firm, while millennials may be more wary and distrustful after the recession of 2008.

Sotheby's London Property
Financial advisors can assist in major life decisions such as purchasing a home

Additionally, millennials have more information at hand, which allows them to be more selective with their advisors.

“Millennials are so much more informed that they depend less on a brokerage firm providing them with research,” Mr. Pedraza said. “Millennials don’t need as much because they are so informed.

“They know that very few financial advisors can outperform the market in the long term.”

One way in which individual advisors often distinguish themselves is by providing a more personal connection for clients. Luxury Institute found that expertise, trustworthiness and generosity were the most valued traits in financial advisors.

Affluent family
As millennials age they are in greater need of financial advice

More than numbers
Investors looking for both a personal relationship and a full-service brokerage firm may seek other solutions to find the ideal compromise. Ultra-affluent consumers often appreciate the relationship-building culture fostered at boutique wealth management firms, according to a report by the Luxury Institute.

The New York-based Rockefeller Wealth Management firm received the highest score in the report, followed by Atlanta-based Atlantic Trust Private Wealth Management and Convergent Wealth Advisors. As wealth management firms continue to repair their reputations following the financial crisis, prioritizing relationships over transactions will be important (see story).

Regardless of the size of a firm, relationships are often the deciding factor when it comes to choosing a financial advisor. To differentiate themselves from competitors, wealth management companies must make crucial changes that will only work if the alterations are part of the company’s core DNA, according to a speaker from the 2012 Forrester Customer Experience Forum.

It is no longer enough to just return calls and give a great customer experience, since clients at wealth management companies are not even thinking about those that do not require this. Instead, Morgan Stanley Smith Barney was forced to bolster its customer service in terms of technology, getting to know the customer and its consultants (see story).

Looking forward, it is essential for wealth management companies to take personal relationships into account in order to appeal to wealthy millennials.

“Millennials will be keen to stay with those who deliver and will dispense with those who don’t,” Mr. Pedraza said. “They will choose advisors based more on the client’s experience than on the client’s return.

“The baby boomers are kind of exiting the stage. Millennials will demand a far more objective and independent metric.

“Advisors need to be completely trustworthy and very responsive,” he said. “They need to go above and beyond to make the client feel special.”


July 15, 2014

What’s The Best Investment Piece?

By: Laura Milligan
Vogue UK
July 15, 2014

The Real Real- which is on track to do $100 million in sales this year, The Fashion Law reports – has evaluated the 500,000 designer items from 500 brands on its database to find what holds its value, and what depreciates faster than a supercar. And some of the results may surprise you.

Most of the brands that hold their value probably won’t come as a shock – Chanel, Louis Vuitton, Hermès, Christian Louboutin, Cartier, Alaïa and Van Cleef & Arpels among them – but those that lose value are more unexpected. Tod’s, Versace and Etro are among those that lose their value fastest, while Marni, Alexander Wang, 3.1 Phillip Lim and Marc Jacobs are among the labels that retail for the furthest from their original retail price. Although they are relatively young labels, Victoria Beckham, Charlotte Olympia and Alexander McQueen all resale for very close to the original value. Whether they will have Chanel or Hermès’s longevity when their pieces become vintage, however, remains to be seen.

Aside from buzz about a new designer (Phoebe Philo having rejuvenated the resale value of Céline, for example), the most important factor in a piece holding its value is availability.

“Brands have to be careful where they allow their product to be sold,” Milton Pedraza, CEO of the Luxury Institute, a industry research group, told Fortune- adding that brands that hold their value generally do not discount or sell widely online. “In that sense, it creates a perception of purity, [which the brand will then] back up with design quality and heritage. If I buy something, I will think, ‘Wow it has long term investment value.’”

One little footnote though before you go forth and shop: no piece is actually an “investment” unless you plan to ever sell it. Just saying.

Click the link to read the entire article which includes a quote from Milton Pedraza, CEO of Luxury Institute: