Schwab has issued the results of an interesting new survey examining the views of high net worth investors (those with at least $1 million in investable assets) and their advisors. Some particularly noteworthy findings follow. Note the frequent disconnect between advisors and their clients.
- HNW investors think investing is easier than their advisors do. While 59 percent of advisors think it will be difficult to reach their clients’ goals with the current market climate, only 32 percent of clients think so. Moreover, fully 25 percent of clients think it will be easy to meet their financial goals compared to only 12 percent of advisors.
- According to 81 percent of HNW investors, creating retirement income to last a lifetime is their primary investment goal. Their advisors think that only 64 percent of HNW investors have that as their primary goal.
- According to the advisors, HNW investors’ primary investment strategies are evenly split (50:50) between capital preservation and asset appreciation. Fully 69 percent of HNW investors favor capital preservation.
- Roughly twice as many men as women (41 to 21 percent) are the sole or primary decision-makers, but women are still involved in 59 percent of the decision-making.
- Only 7 percent of HNW investors say that their desire for advice has decreased since 2008 while 37 percent say it has increased.
- HNW clients choose a new advisor most often for greater attention/service (66 percent) and to obtain a more holistic approach to their investments (51 percent). However, 37 percent were looking to protect their assets and 37 percent were looking for better performance.
- HNW investors learn of their advisor via referrals from friends/colleagues (23 percent), family members (17 percent), financial institution (9 percent) or from another professional (9 percent). Only relatively few HNW clients are obtained through events (4 percent), media (3 percent) or an ad (1 percent).
- HNW clients listed knowledge (71 percent) and advice (59 percent) as the key benefits of working with an advisor. But 49 percent listed investment performance. Moreover, trust (48 percent). service (47 percent), objectivity (43 percent), fiduciary responsibility (40 percent) and independent thinking (35 percent) also received a lot of support.
Some very tentative conclusions from this data follow.
- HNW clients think investing is far too easy. I suspect that means that advisors are not dealing with risk and their clients’ risk tolerances adequately. It also suggests that good advisors are undervalued.
- Everyone agrees that retirement income is the primary goal, but there is still a wide disconnect between advisors and their clients. If advisors are not focusing on retirement income, they are not meeting their clients’ felt needs.
- HNW clients want to be safe and rich. Managing that minefield will continue to be a major problem for advisors. As a consequence, the value of clear, consistent and detailed communication as to what investment decisions are being made and have been made as well as the reasons for them cannot be overemphasized.
- The emphasis by HNW investors on a holistic approach as well as the desire for objectivity, fiduciary responsibility and independent thinking provide further evidence that the era of the product-pushing salesman is over. It’s like World War II after D-Day — there would be losses and uncertainties along the way, but the end-result was basically decided.
Above the Market 
After reading this article, I reviewed the Schwab report and while I don’t wonder why
women are more likely than men to report they trust their financial advisor: 35% vs. 22% than men, (I think women are more likely to do some homework after the referral) the level of trust people have for their advisors changing between 30-55 year olds and those 66-80, (36% vs. 22%) may be worth some thought.
Pingback: Wednesday links: act accordingly | Abnormal Returns
Reading that investors think investing is easy is a bit disheartening and not surprising. I think the discount brokerages have done a marvelous job in convincing investors how easy investing is.
I agree that good advisors are undervalued. Investing well is hard.
Excellent point. The commercials suggest that nifty digital features and some cool-looking charts mean that anybody can be Seth Klarman. Thanks for reading and commenting.
Pingback: Wednesday links: act accordingly
Pingback: Top clicks this week on Abnormal Returns | Abnormal Returns
Perhaps you should have this quotation inscribed on a plaque and installed in your reception area: “Are you smarter than the average professional investor? Probably not.” – William F. Sharpe, emeritus professor of finance, Stanford University, and Nobel Laureate in economics
That being said, it seems that a majority – perhaps vast majority – of investment advisers are not any better than buying a few random Vanguard funds and redeeming them as needed when you retire. This is not to demean the ones that are truly good. But if I had a nickel for every investment adviser that tried to sell me an unnecessary insurance product that generated high commissions or that absolutely had no clue about even fundamental principles of investing, I’d probably have an extra hundo in my pocket
Perhaps the best advice is to look for the CFA designation (and disregard all other designations) if you are not capable of managing your own money.