Why Investors Prefer Independent Financial Planners: 'Trust'

 

Investors trust independent financial planners the most among all advisors types, a recent report by Spectrem Group found. They are also the second most popular advisor type behind full-service brokers.

“The appeal of independent financial planners appears to be the straightforward nature of the relationship,’’ Spectrem president George H. Walper Jr. said in a statement. “Investors who use IFPs are not looking necessarily for complicated financial strategies. They have a high level of trust in their advisor that they are getting the best product or service they can for the fee they are paying without any outside pressure affecting the choices given to them by their advisor. They feel they are getting a more holistic approach to their financial situation.”

Mr. Popular Among Investors

The report, Profiling of Investors Based on Their Preferred Advisors Types, surveyed more than 6,600 households and found that 24% of respondents use an independent financial planner versus 36% who use a full service broker. Investment managers came in third at 12%.

Investors who participated in the study were given the following description of independent financial planners: “This person is not affiliated with any large financial provider. He or she delivers objective, comprehensive advice around retirement planning, estate planning, tax strategies, cash flow and investments. Financial planners typically charge a flat fee for their planning advice, or a percentage of assets under management if they actually manage investments for the client.”

Spectrem points out that when an advisor is independent, “it is a signal to investors that they are less likely to be driven to offer selections chosen for them by someone upstairs.”

High Levels of Trust, Satisfaction

Asked to place their level of trust in their advisor on a scale of 0-100, investors who use independent planners averaged a rating of 87.55, the highest among all advisor types. Satisfaction rates among investors using independent planners are also among the highest and, not surprisingly so, is their loyalty.

Investors who use an independent financial advisor, however, have a lower level of risk on average than investors using other types of advisors. More than 50% prefer a guaranteed rate of return for the majority of their investments rather than allocating a portion of their investments at significant risk for a higher rate of return. Spectrem maintains that an advisor hoping to lure an investor from an independent planner would need to show a willingness to accept the investor’s need for safety over risk and reward. (For related reading, see: Here's How Investors Choose Advisors.)

The report also found that investors who use independent financial advisors do not spend much time with their investment plans and likely use their advisor for more of a secure, long-term outlook. Just 31% of the investors who prefer an independent planner like to be involved in the day-to-day operations of investing and only 32% enjoy investing. Both are the lowest percentage of all investors in the study.

Tips for Advisors

Spectrem suggests the following for advisors:

Investors can change their attitudes towards risk periodically. Advisors who meet with investors currently working with an independent financial planner should question whether the safety of the investor’s choices is actually reducing his or her opportunities to increase their portfolio’s value.

While many types of advisors provide financial planning services, the key is to offer them in a way that provides answers that are suitable for the client and do not appear to promote only the products and services of the advisor.

Advisors should conduct client satisfaction surveys regularly. This allows for advisors to identify any challenges as well as opportunities for new products and services.

The Bottom Line

Independent financial planners are the most trusted by investors among all advisors types. Other types of advisors looking to attract clients need to keep their low risk tolerance in mind and make sure they do not appear to promote products and services.

 

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