The evidence is readily available; below a certain level of wealth, investors do not engage in a relationship with financial advisors because they do not believe their asset amount warrants the expenditure and time commitment.
But there are numerous advisors willing to work with an investor without the investment of six figures, and there is a network of young advisors who court those investors openly.
According to our wealth segmentation series study Advisor Relationships and Changing Advice Requirements, 32 percent of Mass Affluent investors with a net worth between $100,000 and $1 million do not use any financial advisors. Among those, 30 percent believe they do not have the assets to warrant hiring an advisor (while others believe they can outperform advisors in investment decisions).
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However, these are people who do invest. Whether they are as successful at investing themselves as they would be with the assistance of a professional advisor is the question.
While many financial providers and advisors require a minimum investment of at least six figures to begin a relationship, today’s burgeoning market of robo-advisors - algorithm-created platforms with no human input - do not always require that much of an initial investment. Now there are also a group of human advisors who are willing to work with investors on a much smaller scale for a small monthly fee.
The XY Planning Network, a collection of young advisors who pay for the use of the network, invite investors of relatively low wealth level to begin a relationship, often virtually. While these advisors are available to meet in person with investors, they are all technologically prepared to meet with investors through video-chat platforms like Skype or FaceTime.
“Regardless of your age or assets, our fee-only financial advisors are dedicated to working in your best interests,’’ the website’s landing page declares.
Among the tab titles on the website are “no commissions”, “no sales”, “sworn fiduciaries”, “virtual services” and perhaps most importantly, “no minimums”.
“I call them the underserved, the people who don’t feel they are being well served by the financial industry because they don’t have the assets,’’ said Kate Holmes of Belmore Financial, one of the founding members of XY Planning Network who no longer is affiliated with the service. “Those people often have the biggest planning challenges of their lives.”
Holmes, who maintains an emphasis on working with the lower asset investor, said the Mass Affluent investor requires so much more than investment advice but they avoid financial advisors who tend to think only about sales and commissions.
“Financially planning for these investors is so much more than investments, and really that is a small piece of the picture, but the industry puts such a huge emphasis on investments,’’ Holmes said. “A lot of traditionally financial planning is a bit overwhelming to some people. I don’t think those clients take all the actions they need to.”
Once Mass Affluent investors get involved with an advisor, they find general satisfaction with the decision as long as their portfolio and net worth are growing. Our study shows that 55 percent of Mass Affluent investors are comfortable with the fees they pay their advisors, and 30 percent generally disregard their fees as long as the advisor is being successful at his or her assigned task of increasing the net worth of the investor.
“It does cost money to hire a financial advisor, and some investors simply do not want to pay the fees involved as part of their budgetary decision-making,’’ said Spectrem president George H. Walper Jr. “But advisors should let investors know that their net worth can grow with the assistance of a professional advisor and then the fees charged become the price for success.”