Planner Utility

One of the curious out workings of the global financial crisis and the share market and asset volatility that followed it was that it exposed lazy financial services professionals.

Unsurprisingly the group that were most affected by this were the rich – partly because they have the most invested, partly because they tended to be overweight shares, but mostly because they are predisposed to paying attention to their assets.

One of the things that we know about the wealthy is that the vast majority of them have a hedonistic bias towards investing – put simply they enjoy the process of making money and spend on average about 8 hours a week thinking about it and making plans for their money.

This means that they tend to assess the performance of those people who help them make and keep their money more acutely than those who fit into the mass affluent category, who tend to be more occupied by the business of running their lives and meeting debt obligations.

When the GFC hit at CoreData we realised it was a great opportunity – not necessarily to make money but to observe how the High Net Worth Individuals (those with more than $1 million in investable assets outside super and residential property) behaved and what happened to the service they were receiving.

The short answer is that by and large they all lost money – taking a hit on average of just over 20% of their asset base as shares and other investments they held froze or plummeted in value.

That was pretty predictable. What wasn’t really predictable was what happened next; one part of the market effectively froze, dumping what assets they had – often at a discount – and re-weighting to cash as well as placing all new monies earned in cash. While the other, much smaller segment went crazy accumulating assets in what they saw as deeply discounted stocks.

What is interesting about this is that the HNWI’s who invested heavily are now reporting that their portfolios are worth about 40% more than at the high point of the GFC (this is self reported, remember – we have not seen detailed portfolios), while those  who became defensive investors are reporting that their portfolios are worth on average about 7% more.

The other curious fact that’s worth reporting is those who saw their portfolios increase by 40% were three times more likely to have been in regular contact with their financial planner and have been receiving and taking advice about investment strategy.

It seems advice may after all have a numeric value.

*Data taken from The End of Certainty, a CoreData study of High Net Worth Australians’ investment and advice behaviour in a post-GFC environment