Leading US advisers show the way ahead

Last year was one of transition for US investors. Volatility in the financial markets moderated and the stock market soared – the key S&P 500 benchmark rose 30 per cent in 2013 – while the bond market declined as investors shifted money out of fixed income. Forecasts coalesced around moderate US economic growth.

But at the same time, the needs of investors have become more complicated. Retirement security seems less attainable, even for the affluent. Investors are confronted with a wave of sophisticated new retail investment products inspired by the more rarefied hedge funds. Inflation and taxes have risen on many people’s lists of financial worries.

The investing world continues to evolve, and with it the qualities that a wealthy investor should be looking for in a financial adviser. Advisers must be unflappable and able to keep their clients focused on long-term financial goals, rather than on the latest tweets.

A good adviser should have one eye on global trends and another on his or her client’s household. Top advisers take a holistic view of a client’s financial needs, looking beyond just investments. As far as the investment portfolio is concerned, while no one expects an adviser to have a crystal ball, he or she ought to have informed views on where stocks may be heading or the best ways to generate income when interest rates are low.

These characteristics are reflected in the 2014 edition of the Financial Times 400 Top Financial Advisers. The tables provide a snapshot of the best advisers to be found at traditional broker-dealer firms in the US. Only 40 per cent of the previous year’s FT 400 are on this year’s list, which is one sign of how difficult and competitive the job of financial adviser has become.

The team at the FT’s sister publication, Ignites Distribution Research, set a baseline for advisers of $200m in assets under management (AUM) plus 10 years of experience, then assessed more than 1,500 qualified advisers drawn from leading broker-dealer firms. The team used a combination of brokerage data, survey responses from advisers and its own research to score the candidates on attributes such as AUM, AUM growth and experience. The methodology is explained fully here.

The researchers used verified AUM from the brokerages’ home offices, so that appropriate comparisons could be made. Advisers were awarded bonus points for having earned any of the top industry certifications – chartered financial analyst, certified financial planner, certified public accountant or certified investment management analyst. Of the FT 400 advisers, 47 per cent have one of these credentials, and 9 per cent have two or more.

Advisers whose information is easily accessible online were awarded bonus points in recognition of their transparency. One sign of a top adviser is commitment to engagement with clients: three-quarters of the FT 400 have profiles on LinkedIn, the networking site.

The list is presented as a grouping of 400. There is no attempt to rank the advisers from one to 400, as the differences between two adjacently listed advisers are often very minor. Many advisers narrowly missed the list this year, edged out by peers with very slightly better profiles. Sometimes the difference was a few more years of experience or an additional professional designation.

The FT 400 is listed state by state; those with higher populations, and higher concentrations of wealth, understandably have more advisers in the tables. Advisers from 36 states, plus Washington DC, are included.

By city, New York, not surprisingly, is again top, represented by 47 advisers – more than double any other municipality. But in an era that has seen big advances in technology and energy, it is notable that San Francisco and Houston tied as the cities with the second-highest number of FT 400 advisers, ahead of Boston and other more traditional centres of wealth.

The final FT 400 is a highly experienced group. The “average” adviser on the list has 25 years in the business and manages just over $1.3bn. A sizeable proportion has been advising clients since before the three-decade bull market in bonds that is now winding down, and can draw on their experience of managing money through multiple stock market cycles.

In keeping with the trend towards specialisation in wealth management, some 86 per cent of the FT 400 work in teams – up from 81 per cent in the prior year. Of those, the average team has 10 client-facing professionals, including partners and relationship managers.

The FT 400 is at the forefront of several trends in the investment management industry. For the sake of efficiency, the big brokerages have been focusing on wealthier clients in recent years, and the listed advisers definitely lean toward a wealthier clientele. Some 83 per cent of the FT 400 serve high net worth investors – those with $1m-$10m in investable assets. But 92 per cent of the FT 400 serve ultra-high net worth investors (with $10m or more).

As the articles in this report reflect, more than a quarter of FT 400 members serve retirees, a population of growing significance as the baby-boomer generation ages. Some three-quarters of the advisers use exchange traded funds, the increasingly popular vehicles akin to index-tracking funds that trade like stocks.

As these numbers suggest, few investments or specialities draw universal agreement from these top professionals. Just as each client has differing needs and aspirations, the leading financial advisers offer a diverse array of skills, opinions and backgrounds.

Investors, then, must ensure they are working with an adviser who is genuinely listening and understands their concerns. Investors need to take responsibility for their interests and, even after picking a financial adviser, should reassess the relationship every few years.

That is a universal rule in picking an adviser, even if an investor is starting off with a list as impressive as the FT 400.