It is easy to understand how investors are affected by the presence of their children. The cost of raising children has been estimated at six figures annually, and that does not take into account the money that is put aside for their future needs, specifically in education.
Having children affects almost all relationships, and that includes the relationship investors have with their advisors. The difference between how investors with dependent children and investors without dependent children relate to their advisor is startling.
Spectrem’s study on children and investing, Family Affairs, delineates the difference between investors who still have dependent children and investors who either have no children or have children who are no longer dependent. The study looks at economics, attitudes, concerns and behaviors of the two groups and notes the differences.
It also examines the attitudes those investors have toward the professional advisors who assist them in trying to manage and improve their portfolios. Advisors should recognize that investors with dependent children are going to be more difficult to engage and to please.
For instance, all investors in the study were asked to rate how different people in their lives help in making financial decisions, based on a 0-to-100 scale. Financial advisors and spouses received the highest rating from both investors with and investors without dependent children. But investors with dependent children gave advisors a lower mark in helpfulness, 61.05 to 65.49 by those investors without dependent children. The difference in the rating for spouses was very similar.
Investors with dependent children gave much higher ratings to outside influences such as co-workers, siblings, friends and parents than did investors without dependent children. The highest differential was in rating the helpfulness of parents.
For a variety of reasons, investors with dependent children are less dependent upon their financial advisor than are investors without dependent children. Only 24 percent of investors with dependent children express a level of dependence, while 35 percent of those without dependent children are either Advisor-Dependent or Advisor-Assisted, according to the Spectrem study.
There is a corollary result in the amount of research investors do related to their advisor dependency. Investors with dependent children do more research into investments on their own, an indication that they are interested in their investments but less likely to let advisors make final decisions on these matters.
Investors with dependent children also have a lower level of trust that their advisor is focused on helping them achieve their financial goals. Asked if they feel their advisor is more concerned with selling products, there was a 10 percent difference between those with and those without dependent children, with those with dependent children producing the higher percentage.
Investors with dependent children also have a lower level of satisfaction with their advisors. Conversely, investors with dependent children have a higher degree of respect for the performance of robo-advisors than do investors without dependent children.
Top Takeaways for Advisors
Where does this negativity toward advisors stem from? Investors with dependent children have many more stressors than do investors without dependent children, and the concern over whether an advisor is providing proper service is probably one of those stressors. Time is another stressor, and investors with dependent children have less of it. As a result, those investors would probably like to be able to trust their advisor more than they do but they do not have the time they need to make certain their advisor is performing his or her job adequately. Therefore, they draw away from the relationship because it is not considered safe from a financial standpoint.
What can be done to alleviate the concerns of investors with dependent children? Flexibility would certainly help. Investors with dependent children are more likely to want to communicate with their advisor through whatever means is most available to them, so advisors must be willing to accept texts or social media communication, which takes less time than phone calls.
*According to Spectrem research, there are currently 29.8 million households with $100,000 - $1 million in net worth (not including primary residence, NIPR). There are 9.1 Millionaire households ($1 million - $5 million net worth, NIPR), 1.21 million Ultra High Net Worth households ($5 million - $25 million net worth, NIPR) and 145,000 households with more than $25 million in net worth, NIPR.