Fired Kicking

A Quarter of Wealthy Investors Don’t Have an Advisor, Study Says

Investors say they prefer to make their own investment decisions, an indication that advisors underestimate the need to broaden their services, according to a new CFA study.

About a quarter of wealthy individuals don’t work with a wealth advisor, and the reasons why involve their preconceptions about the quality or value of the relationship, according to a new survey by CFA Institute and Scorpio Partnership. The study, which surveyed wealthy individuals and advisors, found that advisors have a narrow view on how clients see value, and are underestimating the extent to which they will need to broaden their services.

Of those investors who do not use an advisor, 60 percent indicated it was because they prefer to make their own investment decisions. About 40 percent cited cost as the reason, while 32 percent said they don’t think an advisor would act in their best interest. 

“That’s a fairly damning accusation that says not only are we not worth the money, but we really are in it for ourselves,” said John Bowman, the CFA Institute’s managing director, Americas. “There’s a lot of work to be done rebuilding our story around why we’re differentiated, why we’re offering more than a robot, why we’re offering more than a passive ETF. And the fact that we can hold your hand through various lifecycles and experiences is really the call to action there.”

To conduct the research, CFA and Scorpio surveyed 1,370 wealth advisors, 892 of which were CFA charterholders and 4,000 private client respondents, with a mean net worth of $7 million between July and December 2016.

As much as advisors market themselves as holistic wealth managers, the study says they are grossly underestimating the need for broad services. When asked about the importance of certain factors in client relationships in five years, the top answers for advisors included transparency and competitiveness on fees; non-investment advice and recommendations; and enhanced access and service through digital channels. Who can blame them? These topics have been front and center in industry conversations recently, especially given the Department of Labor’s fiduciary rule and the ascension of robo advisors.

Yet, clients’ expectations were not isolated to these areas; they expect all the factors listed in the study to become more important in changing their relationships with wealth management firms.

“If now the benchmark for quality advice or fulfilling experience is simply convergence of digital tools, we’ve also missed the boat,” Bowman said. “I think what clients are saying is that they’re giving us, in some sense, liberation and freedom to bring about a wide variety of tools and competency sets to design an asset allocation that really suits them; to showcase our value in ways that perhaps we’ve not been as eager to do previously because we were fighting either some public benchmark or focusing completely on a product specifically, on the digital side.”

The survey also found that CFA practitioners misjudge the extent to which clients want them to demonstrate expertise across a range of technical product areas. For example, clients believe their advisors should be highly proficient in hedge funds, private equity/venture capital, sustainable investing, real estate, and management of family enterprises. But when asked the same question, CFAs underestimated the importance of these areas, stressing instead things like portfolio management, asset allocation, and financial plan creation.

“If we’re nothing but a commoditized asset allocation solution to a few different profiles of clients, then we’re in very deep trouble,” Bowman said. “We’ve got to go a lot farther than that in defining our value proposition.”

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