High net worth investors want their advisors to understand them, and what they want them to understand are their feelings about investment risk.
Spectrem research shows that understanding risk tolerance is a key to the relationship between wealthy investors and their advisors.
The research examined Ultra High Net Worth (UHNW) investors with a net worth of between $5 million and $25 million Not Including Primary Residence.
Asked what would cause an investor to change financial advisors, 37 percent said “advisor does not understand my risk tolerance”. It was the fifth-most popular answer, behind “not returning phone calls in a timely manner” (67 percent), “not being proactive in contacting me” (58 percent), “not returning e-mails in a timely manner (55 percent) and “not providing me with good ideas and advice” (54 percent).
With that threat to leave under consideration, 89 percent of UHNW investors said they felt their advisor “understands my appetite for risk.”
While the overall percentage of investors who would end an advisor relationship because of a lack of understanding was 37 percent, most age groups felt more strongly on the matter. Fifty-two percent of investors aged 47 and younger would change over the understanding of risk, and 46 percent of investors aged 55 to 64 would do so as well. Only the oldest investors, 65 years of age and older, were under the average, at 32 percent.
Based on wealth level, only the wealthiest investors were below the 37 percent mark. Thirty percent of investors with a net worth between $15 million and $25 million NIPR said they would change due to the understanding of risk.
Forty-nine percent of investors who consider themselves advisor assisted, those who make their own investment decisions with the assistance of advisors, said risk tolerance misunderstanding was a reason to change advisors.
Younger investors aren’t so sure their advisors understand them. While 89 percent overall said their advisor understood their risk tolerance, only 80 percent of investors between the ages of 48 and 54 felt that way, and 81 percent of investors aged 47 and under did so.