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AFFLUENT CUSTOMERS TURNING TO INDEPENDENT ADVISORS

The loyalty of wealthy clients to their financial services providers is undergoing a dramatic shift, according to a recent report.

The loyalty of wealthy clients to their financial service providers is undergoing a dramatic shift, according to a report by Spectrem Group, a Chicago-based consulting firm specializing in the affluent and retirement markets.

Driven in part by Internet-enabled information and transaction tools, high-net-worth investors are moving away from traditional loyalties to financial institutions and aligning themselves with advisors and "open architecture" platforms on which they manage their finances, the report says.

Three key trends are driving this change: the impact of the Internet, the movement toward open architecture and the increased role of independent advisors.

"The Internet has provided investors with access to a vast array of previously unavailable financial information, increasing their knowledge and boosting their investing confidence," said Laurie Cochran, a director at Spectrem and co-author of the report, Is Client Loyalty Dead? Meeting the Needs of Affluent Investors in the Age of Aggregation. "It has also changed the way many affluent households manage their finances, providing 24/7 information and transaction capabilities," she said.

In response, financial institutions are investing an increasing amount of IT funds in private banking technology. Money has gone to replacing or modifying existing systems or providing new applications connected to them, with the goal of improving efficiency or offering the client enhanced financial information.

Affluent investors today are demanding access to a variety of investment products and services from many sources, said Cochran. Most advisors prefer access to a wide array of products and services from multiple providers, enabling them to maintain objectivity and select the best-in-class product or service for the client.

With the emergence of open platforms like online brokerage accounts, Schwab's One Source and new account aggregation services, investors now have the ability to satisfy those goals. "We believe that investors are comfortable receiving all their financial information from one source, but they do not want all of their investments to be in the products of one company," said Cochran.

More and more affluent households are turning to independent advisors to assist them in managing their finances. Today, over one-third of affluent investors consider an independent advisor, such as a registered investment advisor or certified financial planner, to be their primary financial advisor, equaling the number of affluent who use a full service broker in this capacity.

"When choosing an advisor, affluent households first look at the name and reputation of the advisor, rather than the name of the company the advisor works for," Cochran said.

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