Every day I interact with investors and during the course of the dialog I ask the same question: “What is your impression of Financial Advisors: Love, Hate, Ambivalent?” The answers I get back are quite informative.
Well over 50% of the responses indicate the investor is ambivalent, has never used a financial advisor, and does not know much about them. The next largest grouping is those that have an advisor, and have used them for years and are very happy with the service and relationship. Of this group, I often get lots of detail about the great service and results. The last grouping is those that either have a negative impression and never used an advisor or had a bad experience. Being sold or recommended an investment for the wrong reason is the most frequent reply I get of this group.
There are actually many reasons why investors don’t understand advisors, and I outline most of them in my book, but here are the three that seem to be the recurring ones from my current conversations:
1. Lack of Financial Literacy
The volume of writing on financial illiteracy is significant, yet it bears repeating. Basic financial literacy topics are not taught uniformly in schools and accounts for the many adults in this country not understanding debt, credit cards, or balancing a check book. Included in basic education should be content about financial advisors, the different types, what they do and in which circumstances do you need one. Imagine if you met someone who literally did not believe in the merits of a medical doctor? There are many people out there that simply don’t believe advisors have a purpose. For example, I’ve interacted with many in particular that are self-directed investors and Vanguard fund devotees, yet when I share the Vanguard reports that illustrate the numerical benefit of financial advisors, suddenly they dismiss that report.
2. Wealth is a Taboo Subject
It is actually difficult to have conversations with people about their wealth and money. There are many emotions that people have about money from privacy concerns, to shame about their perception of not having enough, to not wanting to admit they are ignorant to feeling bad about past mistakes. The basic emotion of not liking a topic drives people away from learning about it.
3. No Success Stories in the Media
It is very rare to find a success story in the media about investor-advisor relationships, despite study after study showing those with an advisor have positive experiences. It is very easy however, to find negative stories about advisors nearly every day. This lack of a balanced narrative has a cumulative effect on those who do not yet have an advisor. For example, I subscribe to several services that journalists use to obtain quotes for a story. One is called H.A.R.O., Help a Report Out. On more than one occasion in the past several months reporters have asked for investor feedback, but the feedback must include bad experiences or only bad experiences.
Most investors do not understand advisors, to their detriment. While some of the underlying reasons are hard to overcome in the short term, financial education is one area where the industry itself in combination with the media can make a meaningful impact.