A study released by London-based Finimize found that a majority of U.S. and U.K. investors are turning away from traditional financial advice in favor of managing their own finances because they feel they are not getting what they need from their advisor.
Finimize, a financial information platform, published its quarterly Modern Investor Pulse survey this month. It spoke with more than 3,800 retail investors from the U.S. and U.K. and found that 51% said the financial industry does not provide them with enough financial advice.
As a result, 63% said they prefer managing their own funds, while only 15% said they would rather work with a human financial advisor. The study estimates that those numbers mean advisors are losing out on about $20 billion in potential assets.
The forecasted $20 billion is based on the estimated $73 trillion of assets expected to transfer to the next generation over the next 22 years, which is about $3.3 trillion per year, the company said. Of that, $2.1 trillion is representative of the 63% who said they will manage their money on their own and assuming a 1% annual fee, according to Hazeley.
Carl Hazeley, the lead analyst at Finimize, said the survey results indicate advisors are failing to address the specific needs of their clients.
“My perception of the financial services industry at large [is] we as an industry aren’t doing a good enough job of bringing people along and meeting them where they are and having the conversation they want to have,” he said.
In the most recent survey, 66% of those surveyed said AI has the potential to solve the advice gap. However, only 13% said they are currently using it, which is down from the previous quarter, when 36% said they were using it.
“It feels a bit like a flash in the pan,” Hazeley said. “What that suggests is the tools and services aren’t quite there yet.”
While the study seems to show a negative perception about financial advisors, Hazeley is optimistic that financial advisors can do a better job of demonstrating their worth to their clients.
“This is not a death knell by any stretch,” he said. “There is a lot that advisors can do.”
The younger generations are the ones who are the most disillusioned about financial advice, the survey found. Those between 25-34 had the highest percentage of individuals, 52%, who said the financial industry does not provide enough financial advice through its products and services. That is compared with about 35% of those older than 60 who said the same thing.
Tapping into the younger generation is another key initiative for advisors to demonstrate their value to clients, according to Hazeley. Those generations find more value in the use of technology including online apps to keep track of their finances. If an advisor can properly incorporate technology into their business, it will go a long way in appealing to a younger audience, Hazeley said.
“If you are able to use technology to start to serve them early … I think there’s a real opportunity to engage them early on,” he said.