A recent survey of U.S. household investing habits revealed an interesting point.
A study by Forrester Research showed that between 1999 and 2003, the number of “validators” — people who do their own financial research but also seek professional advice — has risen, while the number of “soloists” and “delegators” has dropped. “I think the main driver is the negative market environment,” Forrester Research analyst Tom Watson says. “Both the soloists and delegators lost a lot of money, even if it wasn't necessarily the advisor's fault.”
He says reps might have to stop playing the traditional “don't worry, we'll take care of you” role if they want to both retain their clients and attract new ones, especially from the younger generation. Another recent Forrester survey shows that 61 percent of Generation X/Y are validators.
“Clients are going to demand more participation in the planning process,” Watson says. “Advisors will have to accommodate that with doing more with them in person, or through a better technology solution.”
Discount brokers are making some attempts to address this market. That's not surprising given that validators comprise 43 percent of the online-brokering population. These are younger, educated investors who are eager to get a second opinion on their investment choices, but often find it difficult to attract the attention of advisors.
Companies like Schwab and Fidelity have been taking aim at this group. In early 2004, Schwab launched Personal Choice, which gives online-brokerage users access to human advice. At the time of the service's launch, Schwab's chief marketing officer Jody Bilney said the service is aimed at investors “with assets in the range of $100,000 to $1 million who are seeking more advice than most online brokers provide, but who simply can't obtain, or don't want to pay for, the services of traditional brokers.”
This segment of the investing population represents about 22 million households with about $6 trillion in assets. Studies showed that, even without alternatives or encouragement, an estimated 10 percent of those 22 million households were moving to new providers.
Despite these trends, some remain adamant that, for financial advice to work, customers must rely heavily on their advisors. Bill Bachrach, a San Diego-based consultant to advisors, does not advocate encouraging validators, but believes advisors should build up enough trust to convert clients back into delegators.
“We, as an industry, train them to not trust us,” he says. “We kind of play into the validators. We educate them too much, instead of saying, ‘Trust us, let us take care of you.’ It's all financial pornography. To a certain extent, we create this perception among clients that they need to validate.”