When an affluent investor hires a financial advisor for the purpose of making stock market investments, that investor has certain expectations.

The primary expectation is probably demanding that they not lose any of their principal investment, although Spectrem research shows that stock market losses are often NOT a primary reason investors change advisors.

But investors want their advisor to be successful at investing their funds. That is not an unreasonable expectation.

What might be unreasonable is the level to which investors expect their advisor to be successful at outsmarting the stock market.

According to Spectrem’s study Evolving Investor Attitudes and Behaviors*, a majority of investors with a net worth between $100,000 and $25 million expect their advisor to do no better than 2.9 percent above the average stock market rate of return. The results of the question are:

·       22 percent believe their advisor should provide a rate of return similar to that of the overall market.

·       20 percent believe their advisor should outperform the stock market by 1-1.9 percent annually.

·       23 percent believe their advisor should outperform the stock market by 2-2.9 percent annually.

That leaves 35 percent which believe their advisor should outperform the stock market by at least 3 percent annually, and it includes 13 percent who look for a rate of return 5 percent or higher than the average stock market performance.

The Spectrem study provides segmentation of investors by financial knowledge and by wealth. The knowledge of the investor about finances and investing does not change advisor expectation by much:

·       26 percent of the very knowledgeable investors expect their advisor to match the stock market performance and 21 percent look for more than a 2 percent higher rate of return.

·       Among those investors who are not at all knowledgeable, 28 percent expect their advisor to provide a rate of return between 2 and 2.9 percent better than the stock market average.

When investors are segmented by wealth, the wealthiest investors expect much more from their advisor.

·       Among those with a net worth between $15 million and $25 million, 36 percent expect at least 4 percent above average stock market return from their advisor-managed investments.

·       Only 15 percent are satisfied that their advisor match the rate of return of the average stock market performance.

Have you had this conversation with your clients? Is it a conversation that needs to be reviewed from time to time based on how the stock market is performing as a whole?

 

 

 

*This research is part of your Spectrem subscription.

 

©Spectrem 2020

 

Keywords: wealth, age, knowledge, investors, advisors, expectations, stock market, Spectrem, evolving