Business Owners Are Quite Different
Some of the most significant differences in investor behavior appear when we segment consumers by source of income. As shown in Exhibit 7, business owners and retirees approach the process of selecting an advisor much differently than consumers who earn their income through an employer.
While 21.5% of consumers who are employed chose their advisor primarily based on the recommendation of a friend or family member, business owners and retirees placed the most trust in their own eyes and ears: 23.1% of business owners and 18.0% of retirees cited the impression the advisor made during the initial meeting as the decisive factor in their selection process. Far fewer reported being influenced by friends or family (11.5% of business owners and 12.0% of retirees).
Business owners are more likely than employees and retirees to follow the lead of their CPA and other professional advisors when it comes to settling on an advisor, with 15.4% reporting this as a primary factor. Retirees, on the other hand, are more sensitive to the investment performance of the advisor, with 16.0% of retirees reporting this as a primary factor compared to 8.4% of employees and only 3.8% of business owners.
Looking at the influence the firm’s brand has on consumers selecting an advisor, we see that retirees are most attuned to the firm’s reputation in the community, with 16.0% reporting this as a primary factor. In comparison, 11.5% of business owners and 9.3% of employees cited brand reputation as the decisive factor.
Moving on to referrals, as illustrated in Exhibit 8, business owners are the most likely to recommend their advisors, with only 15.4% reporting that they have never made a referral compared to 30.8% of employees and 34.0% of retirees. Business owners may also very well be the most enthusiastic promoters of their advisors. Among entrepreneurs, 30.8% say they are raving fans and regularly refer people they know to their advisor. In comparison, raving fans make up 19.6% of employees and 14.0% of retirees. Business owners are also most likely to positively react to a request for a referral from their advisor, with 19.2% having made a referral that way compared to 14.0% of employees and only 4.0% of retirees.
Conclusion
Financial advice and its cousins—financial planning, investment advice and wealth management—are relatively new services. Consumers are still gathering information on the value provided by these services and how best to evaluate potential service providers. As this survey conducted by The Ensemble Practice LLC among consumers with income over $100,000 shows, there are many characteristics of the exact situation of the consumer that advisors should understand and incorporate in their strategies.
Philip Palaveev is the CEO of the Ensemble Practice LLC. He’s an industry consultant, author of the books G2: Building the Next Generation and The Ensemble Practice and the lead faculty member for the G2 Leadership Institute.