The numbers are in, and young Millionaire investors are definitely measuring their usage of financial advisors to make certain the relationship works.
Spectrem’s new study on advisor usage – Advisor Relationships and Changing Advice Requirements – examines the extent to which affluent investors use financial advisors. The study starts at investors with a net worth of $100,000 (not including primary advisor) up to the Ultra High Net Worth investors with a net worth of $25 million, and as expected, those with more net worth are more likely to call upon the services of a financial advisor.
The Millionaires, those in the study with a net worth of $1 million to $5 million (NIPR), fit in the middle in terms of advisor usage, but the very telling research finding is how Millennials and Gen X investors feel about using professional advisors.
Among Millionaires, 75 percent use professional advisors, but only 66 percent of Gen X investors use one. In contrast, 74 percent of Baby Boomers use a professional advisor and 76 percent of World War II investors do so.
“The takeaway from this initial reach point is that there is a market of Millionaire Millennials and Gen X investors who have yet to accept the concept of getting financial advice from professional advisors,’’ said Spectrem president George H. Walper Jr. “The question is whether this is a generational shift or if it is simply a factor of age. If there is an age at which investors are more likely to use advisors, then those advisors need to be directing their marketing efforts to that age range.”
There is little disagreement between age groups regarding why they do not use advisors. The Spectrem report shows that a majority of Millionaire investors in all age groups who do not use advisors believe they can do a better job of investing their funds than a professional (and obviously at a much lower cost) and/or they believe financial advisors do not look out for the best interests of their client when they make investment recommendations.
Advisors can note from the study that not only do older investors use advisors more often, they also do so more frequently. Segmenting the investors into categories related to how they use advisors, a whopping 73 percent of Millennials consider themselves to be either Self-Directed investors, with little or no contact with advisors, or Event-Driven investors, who only access their advisor in the case of special financial needs or events such as paying for college or estate planning. Among Gen-X investors, 79 percent are either Self-Directed or Event-Driven investors.
That is in stark contrast to Baby Boomers, of whom 62 percent are among reluctant advisor users, and 60 percent of World War II investors, who are more likely to be Advisor-Assisted or Advisor-Dependent investors.
Fewer investors, however, are using the excuse that they cannot afford an advisor to explain why they don’t use one. It’s a perception, of course, but investors are more likely to view advisors negatively in terms of performance than they are to consider advisors an expensive proposition.
Among Millionaires, one-third use a Full Service Broker as their primary advisor, and 18 percent use an Independent Financial Planner. But again the Gen X crowd diverts from the norm, with only 16 percent using a Full-Service Broker among those investors who use a professional advisor.
Top Takeaways for Advisors
Whether it is a factor of age or activity or interest, there is a point at which investors are more likely to turn to a financial advisor. The Spectrem study does a valuable job pointing out when that moment might come and what outside influences could cause an investor to become more dependent on the services of a financial advisor.
At the same time, there is a moment in which some clients decide to become more dependent on their advisor, and regular and directed communication with clients can determine if and when your client is approaching that point.
©2017 Spectrem Group