Most wealthy investors give due credit to their financial advisors for the role they played in either the creation or the maintenance of their wealth.
They usually credit other factors ahead of their advisor (education and hard work most often), but they do note the value their advisor had in the process of becoming one of the wealthiest Americans.
However, it is fair to say that the relationship between the wealthiest investors and their advisor is usually built out of mutual respect, and not one of dependence.
Spectrem’s newest study of the most affluent investors details the relationship between investors and advisors. The Wealthiest Americans studied investors with a net worth of more than $25 million and asked them to describe the relationship with their advisor.
Almost 90 percent of the wealthiest Americans use an advisor (and almost 60 percent use multiple advisors), but only a very small percentage of them admit to being dependent upon their advisor for investment decisions. Only 9 percent consider themselves Advisor-Dependent, the type of investor that allows an advisor to make almost all investment decisions. Twenty-two percent of the rich consider themselves Advisor-Assisted, in which they consult advisors regarding most of their investment needs.
What do these numbers mean? They mean that the wealthiest Americans do not generally depend on their advisors for investment decisions. There is a reason for that; these investors believe they know enough to operate on their own.
An amazing 96 percent of the wealthiest investors believe they are either knowledgeable (32 percent) or very knowledgeable (64 percent) about financial products and investments. More than two-thirds like to be actively involved in the day-to-day management of their investments. What do they need an advisor for?
That’s a good question, one that advisors can answer when they hold meetings with their wealthiest clients. A good opportunity to promote the services of an advisor comes when discussing risk tolerance with the wealthy investors.
A majority of the wealthiest investors consider themselves to be aggressive (and 30 percent consider themselves “most aggressive’’) in their investment decisions. A knowledgeable investor with an attitude toward investment risk is likely to seek as much information as possible before pulling the trigger on big investment decisions, and advisors can certainly offer to provide their expertise when the investor asks the questions.
Advisors who want to improve their significance with the wealthiest investors face numerous challenges, including the fact that the information they offer is available for free elsewhere. The most affluent investors get financial and investment information from a variety of sources, and financial advisors are in competition with daily financial newspapers like the Wall Street Journal, weekly financial publications (magazines), cable news programs and the assorted financial websites that exist.
Advisors and financial providers want to attract extremely wealthy clients because there are bottom-line advantages to working with investors with large portfolios. But the wealthiest investors are difficult to impress and advisors are tested to prove their value to investors who feel they do not need an advisor.
Advisors should be prepared to display the skills and knowledge they possess to create a relationship in which investors look forward to making contact.
Top Takeaways for Advisors
Considering all of the elements that make the wealthiest investors a tough crowd to attract and impress, what is an advisor to do?
The answer is to know as much about the investor as possible from a financial and investment standpoint. Risk tolerance, investment knowledge and the pleasure they derive from investing and making good choices are good places to start. Having an idea of the influences that play a role in each investor’s life, and the manner in which they acquire the knowledge they use when making investment decisions could give an advisor the keys to create a positive relationship.
The wealthiest investors are likely to believe the advisor needs them more than they need the advisor. With that in mind, a high-pressure sales tactic is likely to fail. Working with knowledgeable investors requires a straightforward approach which provides information investors may not already have.
Become an expert regarding the types of investments that are more difficult for investors to easily educate themselves about. This could range from a discussion of commodities, international investments, REITS, or multiple types of investments that might be right for a specific investor.
Be able to identify all of the potential impacts an investment may have for a family. What are the tax consequences? What about the estate issues? Look at the bigger picture and be able to explain how an investment fits.
©2016 Spectrem Group