Financial advisors educate themselves on investment products, and watch the stock market religiously. Financial providers investigate investor trends with an eye toward offering services investors want, and providers hire the most knowledgeable advisors they can find to better serve their clientele.
And, as it turns out, those investor clients do not always pay heed to the advice they are given.
As part of our monthly research with affluent and wealthy investors, Spectrem asked investors in August to indicate whether they follow the advice of their advisors. Investors were asked to use a 0-to-100 scale, with ‘0’ meaning “rarely follow the advice of my advisor” and '100' meaning “completely follow the advice of my advisor.”
On that scale, among investors with a net worth up to $25 million, the average rating was 54.34.
That middle-of-the-road rating begs one important question immediately (and several others with some afterthought):
“Why is that number not closer to 100?”
Many advisors are certainly aware when an investor client does not follow their investment advice. They handle a portion of that investor’s portfolio and make the purchases or sell the products for the investor, according to their client’s wishes.
But many investors handle their own investments after receiving advice from professionals. And from the looks of the survey results, those investors, after careful consideration of all the factors including the advice they received, decide to do something other than what their advisor suggests.
There are dozens of examples of professionals who try to assist others who may or may not accept the assistance they are offered. Teachers, for example, spend their days providing information and education to schoolchildren, many of whom fail to hold on to 100 percent of what they are taught in any one day.
The results of the survey might make an advisor think about one of the two colloquial sayings which discuss such wavering acceptance of professional advice. “Let’s throw it against the wall and see what sticks”, or “Let’s run it up the mast and see who salutes’’ seem to apply here.
But one of the most intriguing elements of an investor-advisor relationship is the level to which an investor buys what the advisor is selling, not just in terms of products but in terms of advice as well. Our research is always segmented based on the advisor dependency of the investor, and there is a strong difference between how self-directed and advisor-dependent investors act and respond to their advisor.
Investors who consider themselves to be knowledgeable about investments and financing are less likely to follow the advice of an advisor. The “Very Knowledgeable’’ crowd rated their rate of following advisor advice at the very low 45.73, while investors who consider themselves “Not Very Knowledgeable” rated their habit of following advisor advice at 63.98, which is one of the highest ratings in the survey, but still not very high.
For the advisors who already knew their advice was not unequivocally followed, this survey may not be disturbing. For advisors who expect their advice to be taken as gospel, it is eye-opening.
Advisors, perhaps, should consider themselves similar to doctors. Physicians are accustomed to repeating their advice to overweight patients to watch what they eat and get some exercise.
Financial advisors may need to repeat themselves as well. But for advisors, it is the bottom line that indicates the value of what actually “stuck to the wall”.
© 2018 Spectrem Group