Changing Advisor Dependency
How dependent are you upon your financial advisor? Has that dependency changed over time? How dependent are the older or younger members of your family upon the financial professional you work with
In its annual research into advisor usage among affluent investors, Spectrem’s 2020 study Evolving Investor Attitudes and Behaviors found that the percentage of investors who are Advisor-Dependent, meaning they allow their advisor to make almost all decisions around investment strategies, was at 21 percent of all investors. That is a notable increase from the 13 percent who were Advisor-Dependent in 2009. The trend toward heavy advisor dependency has slowly increased over those 11 years.
At the same time, those who are Self-Directed investors, who use financial advisors minimally if at all, has also increased, up to 39 percent in 2020 from 32 percent in 2009.
That response is an unusual one; either investors are going all in with their advisor, or they are avoiding advisor use all together. Only 41 percent now sit in the middle section, either Advisor-Assisted (using an advisor to provide guidance on all investments but making their own decisions) or Event-Driven (using an advisor for special purposes such as retirement planning or education funding plans). In 2009, 55 percent were in those two middle segments of advisor dependency.
Where do you sit in this spectrum of advisor dependency? Has that changed over time? Do you anticipate it changing again as you get older?
When examining advisor dependency by wealth, the wealthier the investor, the more likely they are to be Advisor-Dependent, up to 25 percent for those with a net worth between $15 million and $25 million. However, that same wealth segment has one of the higher Self-Directed percentages, 42 percent, compared to 30 percent of those with a net worth between $3 million and $5 million.
There is also a huge difference in advisor dependency based on age. Fifty-two percent of Millennials are Self-Directed investors and only 6 percent claim to be Advisor-Dependent. On the other end of the spectrum, 23 percent of World War II investors are Advisor-Dependent and only 36 percent are Self-Directed.
If you are a Millennial reading this, how has your advisor dependency changed as your career and net worth have advanced? Do you anticipate that your advisor needs will increase again in the short-term? Has the recent stock market fall related to business decisions because of the coronavirus changed your dependency on your advisor?
And, if you are an older investor, consider how your own advisor dependency has changed over time? Have you taken full advantage of that relationship?
Few people like the idea of being dependent upon others, but in the case of investment decision-making, having an advisor to lean on is a good asset to have. In today’s world, it is perhaps a vital asset to have.