At the end of March, the SEC quietly published IM Guidance Update No. 2014-4. This memorandum will allow investors to review client opinions of investment advisers or investment advisory representatives (IARs) that are posted by a third party.
From Spectrem Group’s research, among Millionaire investors with a net worth between $1 million and $5 million, more than 70 percent of investors use a financial advisor to some extent, but a majority of those are Advisor-Assisted or Event-Driven, using advisors only for advice, not direction. Sixteen percent of Millionaires consider themselves Advisor-Dependent, described as “relying on an investment professional or advisor to make most or all investment decisions”.
Spectrem Group’s study Financial Attitudes and Concerns looked at investors in three separate wealth segments and studied their tendencies when making an investment. The segments were Mass Affluent (with a net worth between $100,000 to $1 million), Millionaire (with a net worth between $1 million and $5 million) and Ultra High Net Worth (with a net worth between $5 million and $25 million).
An interesting result of the study showed that Business Owners tend to be less concerned about tax implications and much more interested in the diversity of investments and the reputations of the companies working with.
Wealth level studies conducted earlier this year by Spectrem Group find that non-Millionaires want the lowest tax-rates while surprisingly the wealthiest households would be willing to pay a higher tax rate.
Affluent investors look at a multitude of influences when selecting investments, but social responsibility is not high among them, according to a study by Spectrem Group.
Only approximately thirty percent of households with a net worth between $1 million and $5 million feel that social responsibility should be a primary investment factor. It has even less importance for wealthier investors with a net worth between $5 million and $25 million, with only a quarter of them feeling this way.
Spectrem Group research of affluent investors shows that a majority of investors make plans to retire at a certain age, but do not manage to do so. It also shows that investors are planning on not retiring at any age.
A recent Spectrem’s Millionaire Corner retirement income survey showed an almost even split of investors still living in the same house and those who have moved elsewhere (53 percent vs. 47 percent).
A Spectrem study of investors based on net income has shown more than a third (36 percent) of all investors were willing to take a significant risk in order to get a high rate of return. As income increased, so did the inclination to take the risk, but even among those with a net income of over $750,000, less than half (47 percent) said they would be willing to take a significant risk with a part of their portfolio with a look toward a high rate of return.
According to Spectrem’s report Affluent Market Insights 2014, there is a relationship between wealth level and advisor usage. Basically, the more money an investor has, the more likely they will use a financial advisor. The AMI showed that there were more UHNW investors in 2013 than in 2012, with an increase from 1.14 million in 2012 to 1.24 million in 2013. There were only 840,000 in 2008 UHNW investors when the recession first hit.
Spectrem’s Affluent Market Insights report shows that the Mass Affluent investor, with a net worth between $100,000 and $1 million, greatly lowered its stock market investment after the recession of 2008 and has not come back even though Wall Street has had a strong showing.
Millionaires are becoming more reliant on financial advisors. This year, 26 percent say they are self-directed investors with no assistance from advisors, that percentage has lowered 6 percentage points from 2013. In 2013, 14 percent described themselves as Advisor-Dependent, that number has increased to sixteen percent. Also increasing is the percentage of Advisor-Assisted investors (up 2 percent to 26 percent) and also Event-Driven investors have increased from 30 percent to 32 percent.
Mass Affluent investors with a net worth between $100,000 and $1 million, 57 percent plan to go with the more conservative choice of putting their money in checking and savings accounts while 31 percent plan to invest in equities.
Among UHNW investors, 37 percent plan to invest international investments such as stocks, mutual funds or other products based outside the U.S. and 37 percent also say they will invest in money market funds. In both cases, those objectives are higher than investment plans for Millionaires or the Mass Affluent.