Investors Do Not Always Listen To Their Advisor


There is no way to sugarcoat this research result from Spectrem Group:

Investors were asked to indicate whether they follow the advice of their advisors, placing their fealty on a 0-to-100 scale, in which “0” indicated “rarely follow the advice of my advisor” and “100’’ meaning “completely follow the advice of my advisor”.

Where would you expect investors to rate their response to advisor advice? While it might not be feasible for investors to give advisors a “100’’ rating in this regard, it would seem the number would be on the high end, because investors pay their advisors for the advice they receive, and that advice should be responsive to the needs and desires of the investor.

Instead, the average rating among all investors (800 of them, with a net worth between $100,000 and $25 million) was 54.34.

That seems to be an incredibly low number for the question that was raised. Although the questions do not exactly line up, the rating of 54.34 indicates investors follow their advisor’s advice about half the time.

“There are many components that go into the investor-advisor relationship, and many investors enter conversations with their advisor with their own ideas about what they should do,’’ said Spectrem president George H. Walper Jr. “There are investors who use their advisor as a sounding board and a research source, and, of course, advisors do perform many of the investment functions an investor does not have the time or knowledge to perform. But there are not many investors who follow an advisor’s advice blindly.”

Spectrem research regularly polls investors on how dependent they are on the advice of their advisor. In the survey that provided the above result, 140 considered themselves to be Advisor-Dependent investors, counting on their advisor to make all of their investment decisions, and those investors rated their habit of following their advisor’s advice at 83.62. The Advisor-Assisted investors, who talk to their advisor about a majority of their investment decisions, rated their advice-following habit at 69.91.

However, investors who only consult advisors when life events prompt them to do so rated their status at 60.11.

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.

But the relationship between investor and advisor is more complicated and certainly less clear-cut than simply listening and agreeing with the advice given.

The research also segments investors based on whether they consider themselves to be knowledgeable about investments and financing. It is demonstrative that those more knowledgeable investors are less likely to follow the advice of their advisor.  The “Very Knowledgeable’’ investors rated their advice acceptance rate at 45.73, while investors who consider themselves “Not Very Knowledgeable” rated their habit of following advisor advice at 63.98. which is still not particularly high.

It is also interesting that investors who consider themselves more willing to take risks in investment do not pay much attention to their advisors at all. The aggressive investors rated their pattern of following advisors at 42.51. The most conservative investors are also iffy on following their advisor’s advice, rating themselves at 52.29 in that category.


Top Takeaways For Advisors

Financial advisors are not the only professionals who offer advice only to see it ignored or disregarded. It happens to physicians all the time.

But advisors give advice, not orders. And the best advice comes after careful consideration of an investor’s own opinions and concerns. The tendency of an investor to follow the advice of an advisor is probably higher when that advisor understands the investor’s financial plans and intentions.

Perhaps the better question to ask is how advisors would rate themselves in terms of following the desires of the investor.


©2018 Spectrem Group