Affluent investors are likely to talk to other people in their lives regarding financial matters, whether it be family, friends or acquaintances.
Investors are free to listen to whoever they deem appropriate, but advisors need to know who has the investor’s ear regarding financial decisions, not so much because that information might competing with the advice from the advisor but to make sure their clients are getting proper financial intelligence.
Spectrem’s quarterly wealth segmentation series study on affluent investors determines which investors are more likely to listen to which sources. In Financial Behaviors and the Investor’s Mindset, investors choose from the people they know, such as parents, friends, siblings and co-workers, detailing who is helping them make financial decisions.
“A wise investor will seek out more than one source of information regarding investment choices, and if they have a family member who has experience with a particular service or product, it makes sense for the investor to access that information,’’ said Spectrem president George H. Walper Jr. “However, advisors are aware of pitfalls investors can make, and are perhaps more up-to-date on certain areas related to investing. As an advisor, it is wise to do what you can to protect your clients from receiving bad advice.”
This topic requires a bit of delicacy on the part of the advisor. It is unwise to tell a young investor, for instance, that their parents don’t know what they are talking about. If an advisor becomes aware that a family member or friend has offered improper advice, advisors must offer counter-advice without offending the investor. This is easy when a certain investment product has been updated through regulations, or when issues such as the prime rate has changed.
The research in the Spectrem study shows one overwhelming fact when it comes to investors receiving help with financial decisions: the older the investor, the less they tend to look to others for assistance in decision-making.
The study looks at three different segments of investors, from the Mass Affluent with a net worth under $1 million, to Ultra High Net Worth investors with a net worth between $5 million and $25 million. Let’s look at the third group, the Millionaires, with a net worth between $1 million and $5 million.
Millennials, it turns out, ask everybody. Asked to rate the helpfulness of people in their lives on a 0-to-100 scale, Millionaire Millennials rate their financial advisor at 67.64, parents at 60.11, friends at 54.93, co-workers at 46.82 and siblings at 43.82. Even though the sliding scale slides downward from advisor and parent to sibling, all of those ratings are high when compared to those from older segments.
For instance, Gen X Millionaires only rate their financial advisor higher than 42. Baby Boomer Millionaires don’t go above 26 other than rating financial advisor (at 63.70) and World War II investors are even more selective.
This research does not mean older investors are more dependent on their advisor. It means they are more likely to follow the advice of their advisor and are less likely to have competing voices in their heads. It also means that they are more dependent upon their advisor to present new investment ideas, since they are less likely to hear of any updated information from family members or friends.
Top Takeaways for Advisors
The value in understanding where investors get their advice on financial decisions comes in both matters of disagreement and agreement. If an investor comes to you with a preconceived notion about a product or service, find out their source (without seeming belligerent about it). If the advice they received is coming from left field, present your advice not so much as a counter-argument but more as another possible path to take.
Don’t argue with investors about the outside assistance they receive. It is possibly someone that investor trusts and will create an us-against-them atmosphere. Presenting alternatives is not arguing, however.
©2017 Spectrem Group