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Investors Dependency on Advisors is Decreasing


Investors Dependency on Advisors is Decreasing

Written by: Catherine McBreen | Spectrem Group

There are many reasons investors employ financial advisors:

  • They employ financial advisors to make the best possible investment decisions.
  • They employ financial advisors to ensure retirement income.
  • They employ financial advisors because they themselves do not have the time nor the inclination to do the work of investing themselves.
  • They employ financial advisors because the investor is not knowledgeable enough to make proper investment decisions.

But some investors use a financial advisor solely as a sounding board, wanting recommendations rather than actual transactional performance. And some investors use a financial advisor only when life demands it, like when a family undergoes a major change, or when retirement becomes a more realized target.

The influence of an advisor is determined by the client’s willingness to accept the advisor’s recommendations. An investor who uses an advisor for direction is different from an investor who uses an advisor as their investment manager.

Spectrem’s study Evolving Investor Attitudes and Behaviors asked investors to describe themselves based on their advisor dependency, started with the Self-Directed investors who make their own investment decisions with very little input from an advisor, all the way to the Advisor-Dependent investors who rely on an investment professional to make most if not all investment decisions.

Spectrem has been asking investors to describe themselves in this manner through the company’s history, and the responses have developed and changed over time. The Spectrem study examines the changes that have occurred, noting that there is less dependence upon advisors just as investors pull away from involvement in the investment environment.

Have wealthy investors changed over time in some critical manner that changes the investor-advisor dynamic?

A 2018 Spectrem study Knowledge, Risk and Advisor Dependency noted that the wiser an investor is about how finances and investments work, the less likely they are to be dependent upon a financial advisor.

Are wealthy investors smarter about investing today than they were 10 years ago? If so, can that be a reason advisor dependency is declining, and if so, is there something that financial advisors need to do to make themselves more desirable as an investing consult for those smarter investors?

The research from 2019 shows that 37 percent of wealthy investors consider themselves to be Self-Directed investors, and 26 percent are Event-Driven investors who consult with an advisor when specialized situations demand it, such as retirement planning or information on alternative investments. That leaves only 17 percent who are Advisor-Assisted, who regularly consult with an advisor but make most of their own final decisions, and 20 percent who are Advisor-Dependent.

The study then compares those results with results from a 2009 study which asks investors to describe themselves in terms of their advisor dependency. While those described as Advisor-Dependent has risen from 13 percent in 2009 to 20 percent in 2019, those who are Self-Directed have also gone up, from 32 percent to 37 percent. The middle ground, represented by Event-Driven and Advisor-Assisted investors, has decreased from 55 percent in 2009 to just 43 percent in 2019.

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