When Investment Performance Doesn't Matter


Investors hire advisors to assist with their investment funds, either on their own or with direction from the investor.

The goal - increase those funds and build a sustainable portfolio to build assets for the future.

One way advisors can do that is by using an investor’s funds to invest in the stock market. Success in the stock market depends on making the proper investments, and investors depend on their advisor to put their investible funds into companies that will provide a return on their investment.

So, one would think that how investments made by an advisor perform against stock market averages would be a defining focus of the investor-advisor relationship.

But it is simply not the case.

Given the opportunity to select all the reasons they would switch their advisor, only 43 percent of Millionaire investors with a net worth between $1 million and $5 million chose “advisor is under-performing compared to the overall stock market”. 

Among Mass Affluent investors with a net worth between $100,000 and $1 million, the percentage drops to 38 percent.

When faced with the Yes or No statement “I rate my advisor on whether or not he or she outperforms the market”, only 49 percent of Millionaires said “Yes”.

Spectrem’s Perspective Why Investors Switch Advisors identifies the reasons investors have changed their primary financial advisor, and found that only 22 percent of those that had switched did so because “advisor was under-performing compared to the overall stock market”.

Younger investors (under the age of 35) and older investors (over the age of 68) were most likely to point to stock market performance (34 percent and 29 percent respectively). Also, 29 percent of Ultra High Net Worth investors with a net worth between $5 million and $25 million said stock market performance was the reason they switched, but that is still below one-third of all investors who changed advisors.

“Advisors do more for their investors than invest in the market, and investors are urged to diversify their investments so that one portion of the American economy cannot decimate a portfolio,’’ said Spectrem President George H. Walper Jr. “Obviously, investors want their investments to grow their portfolio, but just as obviously, for a majority of investors, stock market performance is not the determining factor in maintaining a relationship with their advisor.”

Our research shows that investors place far greater value on good communication than on stock market performance.

Which is not to say the bottom line doesn’t play a role. According to our report Advisor Relationships and Changing Advice Requirements, approximately one-third of all investors are unconcerned about the fees they pay to advisor as long as their assets are growing. That percentage grows as wealth grows.