Investors hire financial advisors to provide insight and direction into personal financial matters, including investments.
The value of the advice provided by financial advisors determines whether an investor stays with that advisor for the long-term, looks for a different advisor, or attempts to handle matters alone.
However, just because an advisor offers advice, and because an investor pays for that advice, does not mean that advice is going to be followed. According to a survey of affluent investors by Spectrem, there is only a little better than 50-50 chance the advice will determine how the investor invests.
A survey of almost 700 affluent investors with a net worth over $100,000 (not including primary residence) asked the question “using a scale of 0 to 100, where “0” is “rarely follow the advice of my advisor” to “100”, which is “completely follow the advice of my advisor”, where would you put yourself?
Among retired investors, the rating averaged to 54.26, barely above the midpoint. Retired investors, in fact, have a slightly lower rating than working investors, who rated their advice-following habits at 54.72.
This is astonishing information. Advisors may not operate differently knowing their advice is only followed half the time, but it demonstrates that advice is not the same thing as directions or commands.
“There are many components that go into the investor-advisor relationship, and many investors enter conversations with their advisor with their own ideas about what they should do,’’ said Spectrem president George H. Walper Jr. “There are investors who use their advisor as a sounding board and a research source, and, of course, advisors do perform many of the investment functions an investor does not have the time or knowledge to perform. But there are not many investors who follow an advisor’s advice blindly.”
What makes the advice-following number among retired investors so much more significant is that retired investors tend to depend on their advisor to a greater degree than other investors.
Spectrem regularly polls investors on their level of advisor dependency, and the most recent result shows that 56 percent of retired investors either describe themselves as Advisor-Assisted (they consult their advisor on almost all financial and investment decisions) or Advisor-Dependent (their advisor makes almost all of the decisions for that investor). That is a high level of advisor usage.
What’s noteworthy is that even among those retired investors who claim some level of advisor dependency, their tendency to follow the advice of their advisor is still not overwhelmingly high: 69.91 among Advisor-Assisted investors and 83.62 among Advisor-Dependent investors.
According to the study Financial Wellness in Retirement, 26 percent of retired investors communicate and use their advisor more in retirement than they did in their working lives. That would seem to indicate a desire for advice, but it apparently does not indicate a desire to follow the advice of their advisor.
Top Takeaways For Advisors
The assumption that retired investors are blindly dependent upon the advice of financial professionals is hereby dashed. Like other investors, they listen, and perhaps they have more conversations with advisors on average than working investors, but at the end of the day, retired investors are just as independent in decision-making as other investors.
©2018 Spectrem Group