At some point, when someone acquires a sizable amount of money, he or she decides they want to invest it to make more money. At some point, when that sizable amount of money becomes even more sizable, that person decides whether they want professional assistance making investment decisions.
And, when that sizable amount of money becomes extremely sizable, and investments become complicated and the portfolio becomes unwieldy, hiring a financial advisor seems par for the course.
And yet it is not.
According to Spectrem’s new study, The Wealthiest Americans: The $25 Million Plus Investor, 82 percent of investors with a net worth of $25 million or more use a financial advisor. By the power of subtraction from 100 percent, that means that 18 percent of investors with a net worth of $25 million DO NOT use a financial advisor. That study includes the fact that 6 percent of the previously mentioned 18 percent use a friend or family member who is not a financial advisor to provide financial and investment advice. Twelve percent just flat out don’t request assistance.
It is possible for an investor to get sound financial advice without using a financial advisor. They can use other professionals – accountants, attorneys, bankers – who provide guidance but don’t fit the title. But when a portfolio ranges into the $25 million area, it seems easy to assume a financial advisor would be employed.
But you know what happens when you assume.
There are probably many reasons investors acquire a net worth above $25 million, but one characteristic most of those investors have if that they are knowledgeable about investing and finances. Ninety-three percent of 425 million plus investors describe themselves as knowledgeable or very knowledgeable about investing.
Knowledgeable investors are also less likely to use or depend on a financial advisor.
Of the investors who do not use a financial advisor, they gave two reasons for that decision: 50 percent said they could do a better job of investing than the professional, and 45 percent said advisory services were too expensive.
One wonders what these $25 million plus investors expect to pay for services on a portfolio that ranges into eight digits or more.
However, 68 percent of the $25 million plus investors who use a financial advisor use more than one, and almost half use three or more advisors. That group is in stark contrast to the investors who do not use any advisors.
Wealthy investors make consistent use of their financial advisor. Fifty-eight percent of $25 million plus investors say their financial advisor is their No. 1 source for information related to investment and finance. Among investors under the age of 38, that percentage climbs to 69 percent. This indicates the level of trust investors have in the information their advisor offers.
The good news is that once a $25 million plus investor finds an advisor they like, they stick with that person or firm. Eighty-two percent of those investors say that once they settle on an advisor, they are unlikely to make a change in advisory support.
Top Takeaways for Advisors
Certainly, those investors with a net worth of $25 million plus have considered hiring a financial advisor. Their reasons for not hiring an advisor (cost, performance issues) are not likely to be resolved without some sort of confrontation, so those investors may not ever come around.
However, working with the investors who have $25 million plus is advantageous beyond the fees or commissions involved. They are fiercely loyal to their advisor, and the study indicates they are likely to recommend their advisor to others. They are also fairly consistent about wanting their offspring to have a working relationship with their advisor.
So covet the $25 million plus investor, and learn all you can about what makes that particular type of investor click.
©2018 Spectrem Group