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Poor Service for Wealthy Offers Opportunity

NEW YORK - For all of the trillions of dollars high net worth individuals invest in the financial markets, they do not always receive detailed, attentive service from their private bankers, said panelists at the Annual Symposium on the Global Money Management Industry last week.

The meeting was sponsored by Putnam, Lovell, de Guardiola and Thornton, an investment banking firm based in San Francisco, that specializes in the investment management industry.

Defining a high net worth investor as an individual with $1 million or more to invest each year, Putnam, Lovell estimates that high net worth investors' holdings in various U.S. investment products is currently $4.7 trillion. Worldwide, the figure is $17.4 trillion.

Despite their enormous holdings, high net worth investors do not always get exceptional treatment from their investment managers, panelists said.

"Private investors expect more, are more demanding, are more sophisticated and probably perceive themselves to be more sophisticated than they really are," said Charlotte Beyer, founder and ceo of the Institute for Private Investors of New York. "And, they are frighteningly unrealistic."

"The investment industry is beginning to resemble the health-care industry: vast and impersonal" to many of the 150 wealthy families who belong to the Institute, Beyer said.

Private banks must improve their service by strengthening customer rapport, said Morris Offit, chairman and ceo of Offitbank, New York.

"The whole basis of a wealth management firm is relationship - delivering a service content that puts the relationship on a different plane [than a regular money management firm]," he said.

"Good chemistry" between a wealthy investor and his money manager can be even more important than investment results, Offit said. If there is good chemistry, "you don't even have to have heroic investment results," he said.

Timely reports and instantaneous answers to clients' questions have also become imperative since clients have easy access to market data on television and the Internet, the panelists said.

The proliferation of market data has put undue emphasis on performance at the expense of long-term strategy, Beyer said.

"I don't see an end in sight to this, because the media that is carrying this information want their viewers and readers to believe they can be their own investment advisors," she said. "They want the viewership, so they will continue to carry the data."

To counteract panicky responses to market movements, private bankers have to have the same information and have to put it in context for their clients, she said.

"Our clients can be as sharp as we are, so we have to have the technology in place to have information at our fingertips," said Maribeth Rahe, vice chairman of U.S. Trust Company of New York.

Beyer also said investment managing companies that cater to the wealthy should not have their portfolio managers double as client service representatives. While clients might like having access to the people who are actually handling their money, portfolio managers are notoriously poor communicators, she said. One of the most frequent complaints of members of the Institute for Private Investors has been about poor presentations by managers, Beyer said.

It is preferable to have a firm's marketing professional speak to clients because they are more effective communicators and are capable of explaining a highly complex investment strategy in plain English, she said.

Because investment managers have largely failed to meet these expectations, a majority of wealthy investors are prepared to change their money managers, according to a survey of high net worth investors by the Institute in 1997. The institute asked investors if they were planning to change their money managers in 1998 or 1999. Sixty-five percent said they were prepared to make such changes. Of them, 67 percent had terminated an advisor within the previous 18 months.

One issue that does not aggravate high net worth individuals as it does retail investors is fees, the panelists said.

"The disparity in how things are priced hasn't gotten scrutinized," said Rahe of U.S. Trust.

"So far, there hasn't been a revolt; our members have been mostly accepting of fees," Beyer said.