Advisor Dependency Increasing


Being able to ask for help is something that many people struggle with.  Some perceive it as a sign of weakness, while others perceive it as an indication they are not able to do things on their own.  This issue is something that impacts individuals in nearly every area of life.  In many cases there is not a negative impact other than perhaps more work or responsibility on the person who refuses to seek help, while in other cases the results can be costly.

Dependency goes a step beyond simply asking for help and puts the decision-making in the hands of someone else.  This happens between spouses, when hiring services, and also in the financial industry.  Wealthy individuals can ask an advisor for help with financial matters, but not be dependent upon them, while others are completely dependent upon the advisor to make the decisions.  There has been a slow shift occurring in the financial industry with more wealthy investors being dependent upon their financial advisor according to recent research from Spectrem Group.

Spectrem Group categorizes a wealthy investors relationship with their financial advisor in four different categories.  The first of which is someone who is Self-Directed.  These individuals make their own decisions about financial matters without the help of a financial advisor.  Over the past year the percentage of individuals who consider themselves to be Self-Directed has stayed about the same, between 37-41 percent.

The second categories are investors who are Event-Driven.  These investors are comfortable making the majority of their own decisions regarding financial matters, but they would consult with a financial advisor for specific situations, events, or guidance on certain investments.  The percentage of individuals who have a relationship with a financial advisor like this has gone down over the past six years, from a high of 31 percent in 2016, to a current low of 22 percent in 2021.

Then there are Advisor-Assisted investors.  These investors use a financial advisor on a regular basis, but they make most of the final decisions themselves.  This means that although they are working with a financial advisor, the advisor is not making the decisions without the approval of the investor.  The percentage of investors who consider themselves to be the final decision-maker but work with a financial advisor on most of their financial needs has gone down slightly since 2016, from 19 percent to 17 percent.

The final category is that of those investors who are Advisor-Dependent.  These wealthy investors count on their financial advisor to make most or all of their financial decisions.  This does not mean that the financial advisor doesn’t seek their input or feedback, this simply means that the advisor is the one making the decision.  The percentage of investors who are Advisor-Dependent has increased slowly but steadily over the past six years, from a low of 13 percent in 2016, to a current high of 23 percent in 2021.

The world of investing has become increasingly complex so it is not a surprise that more individuals have shifted from only using a financial advisor for specific topics or using an advisor but making the final decision themselves to relying upon an advisor to make most or all of their financial decisions.  Understanding asset allocation is just one small part of the services an advisor provides that impact a wealthy individual’s financial life, so being able to reach out for assistance to a financial advisor and put trust in them to make decisions can be something that will provide benefit for the rest of one’s life.