Some Millionaires are self-made and some had help. Some Millionaires had help from family, and some had help from professionals in the field of finance and investment.
Seventy-eight percent of Millionaires use a financial advisor to some extent. But, investors use advisors to varying degrees, and it is very easy to miss-read a client’s perspective on what kind of relationship they want to have with an advisor.
Our wealth segmentation series regularly asks investors to describe their level of advisor-dependency, and then surveys them on matters of personal concern, national concern and on issues related to finance and investment. The results show that Millionaires differ from others based on their advisor-dependency, or lack thereof.
“It’s always revealing how much the advisor-investor relationship can impact other aspects of an investor’s life,’’ said Spectrem president George H. Walper Jr. “From those who depend entirely upon their advisor for investment decisions to those who avoid advisors, their attitudes on subjects outside of investments relate based on their advisor relationship.”
Our study separates Millionaire investors into four categories of advisor-dependency: Self-Directed (those who make their own investment decisions with assistance), Event-Driven (those who only use advisors for specialized issues such as retirement planning or alternative investments), Advisor-Assisted (those who regularly consult advisors but make most of their own decisions) and Advisor-Dependent, which is self-explanatory.
Most Millionaires are either Self-Directed (31 percent) or Event-Driven (31 percent). Only 16 percent claim to be Advisor-Dependent. Keep in mind that 78 percent use an advisor on some level. The Self-Directed investor will accept advisor assistance but may not place any of their assets with that advisor.
An Advisor-Assisted investor may actually have indicated that the advisor has full discretion. However, with these investors, advisors must realize their client wants to be very involved with the investment decisions. If the client is not treated in this manner, the client will not be satisfied with the advisor relationship.
There is a clear demarcation between Self-Directed and Advisor-Dependent Millionaires when the subject of wealth creation is examined. Only 24 percent of Self-Directed Millionaires claim inheritance played a role in their wealth level, while 42 percent of Advisor-Dependent benefited from inheritance. However, when considering “taking risk” as a wealth creation factor, 60 percent of Self-Directed and 61 percent of Event-Driven Millionaires said it had an effect on their wealth level, while only 48 percent of Advisor-Dependent Millionaires agreed.
The matter of investment risk is expressed in another category. Asked if they are willing to take a risk with a significant portion of their investment portfolio in order to earn a high rate of return, 46 percent of Self-Directed Millionaires said yes, 38 percent of Event-Driven said yes, 37 percent of Advisor-Assisted agreed but only 28 percent of Advisor-Dependent did so.
There are also differences in optimism among Millionaires of different advisor dependency levels. Forty-five percent of Self-Directed Millionaires believe their financial situation will be better one year from now, while only 34 percent of Advisor-Dependent Millionaires are that optimistic.
Millionaires were asked about their level of concern on national issues, and in general the more advisor-dependent the investor, the more concerned they are. The greatest separation was in financial matters such as inflation (63 percent of Advisor-Dependent to 48 percent of Self-Directed) and increases in the interest rates (45 percent to 34 percent).
On personal issues, there were more variations, although still not a topic about which Self-Directed Millionaires had greater concern than Advisor-Dependent ones. “Maintaining my current financial positon” was a concern for 61 percent of Advisor-Dependent Millionaires but only for 46 percent of Self-Directed Millionaires. When the concern was a family health catastrophe, 59 percent of Advisor-Dependent Millionaires admitted to worry while only 45 percent of Self-Directed Millionaires did so.
It was interesting that while optimism for one’s personal financial future was lower among those Millionaires most advisor-dependent, it was higher from that same group when discussing their children’s financial future. Asked whether they agreed with the statement “I believe when my children reach my current age, they will be better off than I am now”, 35 percent of Advisor-Dependent Millionaires and 31 percent of Advisor-Assisted Millionaires agreed, while only 29 percent of Self-Directed and 26 percent of Event--Driven Millionaires agreed.
Advisors must engage with clients and prospect to determine the advisor behaviors that clients prefer. If advisors ignore client desires related to advisor services, client satisfaction will be affected. Advisors will end up spending a great deal of their valuable time with Self-Directed investors who have no intention of placing investments with the advisor and do not place the same value on an advisor relationship.