Spectrem just published a report entitled Converting Self-Managed Investors. The report focuses on those individuals who defined themselves as “self-managed” or “self-directed” and how to attract these individuals as clients. These households represent a significant percentage of potential clients. I believe that a lot of these households don’t really want to be self-managed. They just don’t know how to ask for advice and they don’t want to be made to feel stupid by asking the wrong questions.
Why would they feel this way? The two biggest reasons investors are not using a financial advisor are because they feel they can do a better job of investing than a professional and because they think an advisor won’t be looking out for their best interests. Why is this?
Let’s be honest about our industry. For many financial organizations there are limits regarding the size of accounts. An organization may not take an account unless it exceeds $250,000, $500,000, $1 million, or even $5 million. In fact, 14% of investors with more than $500,000 of net worth feel that they don’t have enough assets to use a financial advisor. And once an investor exceeds those minimum account sizes, they may still be at the lower end of the client bell curve. This may mean that they don’t get a lot of attention from the financial advisor. So why should they be willing to turn over their assets to someone who probably doesn’t really care about them?
It’s also likely that investors who are self-managed struggle with multiple aspects of their financial lives. Recently we found that 75% of investors who have a financial plan actually feel they follow that plan. Good for them. But what about those who don’t have a plan? And even if they had a plan, could they follow it? It’s sort of like following the Keto diet. How many people actually can stick to it forever before they sneak a cookie? Isn’t it possible that self-managed investors have trouble following a plan? Maybe they don’t want to be criticized for sneaking a cookie every once in awhile.
That’s not to say that there really aren’t investors that truly think they know more than a financial advisor. But unless the individual is an investment professional themselves, or they spend all day watching the markets and researching stocks, it is more than likely that they could benefit from the expertise of an advisor. I come from an extended family full of lawyers. Of course, many of them feel they are too smart to use a financial advisor. I’m not really sure they truly are well-prepared for retirement. I’m quite sure that they know a lot about their various areas of legal expertise, not sure they understand investments.
So, what do advisors do to attract self-managed investors? Well, first they have to acknowledge that they really want them. Secondly, advisors need to prove they are “Honest and Trustworthy”. How do you do that? Be honest not only about fees but about yourself. Paint yourself as a real person. And, in return, do the same when talking to prospects. Ask them about themselves…not just their assets. You may find that the $250,000 account actually has more assets than you initially thought. Take the time to learn their story. Remember who they are.
And then provide some demonstration of your expertise. Follow up to a conversation with some type of article or information regarding what you discussed. Make sure they are aware of your certifications. While many won’t care about the letters after your name, they want to make sure that you “know more than they do”.
All of this sounds like “Sales 101”. But you would be surprised at how many individuals really feel that financial advisors just don’t really care about them. Ameriprise has a new commercial out in which they ask, “Would your advisor recognize you?” That’s a really good message.
To attract self-managed investors, advisors and their organizations need to prove to these investors that they really care.