Wealthy investors may invest without the help from a professional advisor, but they rarely make financial decisions completely on their own.
Whether it is family or friends, investors often survey or consult with others in making decisions that will affect their bottom line.
Financial Behaviors and the Investor’s Mindset, our newest wealth segmentation series study, examines investors from three different wealth segments regarding how they make financial decisions, and the factors that weigh heaviest on their plans for their financial future.
Millionaires, those with a net worth between $1 million and $5 million, are more likely to operate without the assistance of a financial advisor. Thirty-one percent claim to be Self-Directed, meaning they make their own investment decisions without professional assistance, while 31 percent claim to be Event-Driven, meaning they only use a financial advisor for specialized needs such as retirement planning.
Only 16 percent place themselves in the category of Advisor-Dependent, which indicates a reliance on an investment professional for most or all investment decisions.
The study asked Millionaires to rate people in their lives in terms of their helpfulness in making financial decisions, placing them on a scale from 0 (not at all helpful) to 100 (very helpful). It is telling that even though many Millionaires do not use professional assistance in making financial decisions, “financial advisor’’ topped the list of helpful folk at 66.76, barely edging out “spouse’’ at 65.09.
Trailing well behind were “friends’’ at 26.02, “siblings” at 23.21, “co-workers” at 20.89 and “parents” at 18.23.
“No one considers it wise to make financial decisions without some information related to past experience or trending investment strategies,’’ said Spectrem president George H. Walper Jr. “Some investors avoid financial advisors for a variety of reasons, but they are willing to access people they know to gain information that could be helpful.”
Our study segments investors in terms of both age and occupation, and the results of the helpfulness question show differences based on those two factors. For instance, Millennials (those born after 1980) ranked every possible source of help much higher than most others. “Parents’’ rated at 48.52, “friends” at 45.82, “co-workers at 44.54” and “siblings” at 42.44. Obviously, younger Millionaires still feel the need for direction from as many sources as possible.
Every category other than “financial advisor” and “spouse’’ saw a decline in helpfulness as age increased.
There was wide disparity in helpfulness based on occupation. In general, “educators” sought out more help from others beyond the most popular choices of financial advisor and spouse. They rated “friends” at 33.39, “co-workers” at 28.96, “siblings” at 28.74 and “parents” at 21.38.
The least likely to look for help outside of the advisor and spouse were professionals (doctors, lawyers, accountants). They were least likely to look for advice from parents or co-workers.
Millionaires have a healthy respect for their own knowledge regarding investments and financial products. Almost 60 percent claimed to be “fairly knowledgeable’’ about financial products and investments, and 21 percent put themselves in the “very knowledgeable’’ range.