A significant percentage of affluent investors do not use financial advisors.
What constitutes “significant”? Among Millionaire investors with a net worth between $1 million and $5 million, “significant’’ means 25 percent.
That’s one of the many stories coming out of Spectrem’s new study on investor-advisor relationships. In Advisor Relationships and Changing Advice Requirements, 25 percent of Millionaire investors claim they do not use financial advisors. Essentially, one-quarter of that lucrative market of investors do not ask for advice from investment professionals.
Should advisors care that so many affluent investors choose not to avail themselves of advisor services?
The Spectrem study asked those investors who do not use advisors why they choose to go it alone. The answers are revealing, even if they set themselves up for disagreement and argument.
Fifty-one percent of Millionaire investors who do not use a financial advisor believe they can do a better job investing their investable assets than a professional advisor can. It is fair to believe that belief is coupled by a similar belief that investors are saving themselves a sizeable amount of money by avoiding the fees or commissions advisors charge to do a job the investor believes can be done just as well without the help of a professional.
Is there a way advisors can challenge this assumption? Can advisors offer a PowerPoint presentation that proves they are more capable than an investor of investing funds with an eye toward growth? There is no way for an advisor to compare his results to the results of the investor, but they can show the value of investment returns against the cost of fees.
But only if they can get the attention of the disinterested investor. That could be difficult to do, on an individual basis. Advisors need to find some way to disseminate that information to a wide base of investors in a hope they can draw the attention of an investor who is doing the work by himself.
While it is revealing that 52 percent of investors from the Gen X generation who do not use advisors believe they are capable of doing the job just as well themselves, advisors need to know such an opinion may change over time. At some point, reluctant investors become less reluctant, and advisors must be prepared to attract those investors when the time comes.
The other argument Millionaire investors have about not using a professional advisor is that 54 percent of those not using an advisor do not believe the advisor looks out for the best interests of the investor. Again, this is a perception that is hard to disprove without the opportunity to work with the investor and show that they have the investor’s best interests at heart. That opinion can probably only be thwarted through heartfelt recommendations from a pleased client, who can assure the reluctant investor that they feel they have received investment advice aimed more at the growth of their portfolio than the pocketbook of the advisor. That is why advisors should cultivate and treasure positive recommendations.
The Spectrem study asked reluctant investors what might cause them to consider using an advisor. Thirty-seven percent of Millionaires who do not use an advisor said a windfall of cash would change their mind, while 21 percent said they could imagine a time when they tire of managing their own investments and will then turn them over to a professional to do the job. This is again something that happens more often among older investors, so advisors need to continue to make contact with investors of all ages to possibly procure new clients.
A cautionary note: only 11 percent of Millionaire investors who do not use an advisor say it is “likely’’ they will change their mind someday. Fifty-eight percent said it is never going to happen.
Advisors must remember that never is a long time. Events occur every day which could turn an investor from one who refuses to use an advisor to one who is in need of investment assistance. Be prepared for that day to come, knowing that a convincing discussion of your abilities and past performance can turn a reluctant investor into a client.