When it comes to choosing an advisor, wealthy investors prefer a national brand and favor working with a team of professionals, according to a new Cerulli Associates study.
The Boston-based research firm found that 39% of the most affluent investors with advisors favored being affiliated with “a large, national organization.” The same goes for 32% of unadvised wealthy investors.
“It’s natural to be trusting of those firms that you have been with … your 401(k) is there and they are the ones that advertise the most,” said Scott Smith, director of advice relationships at Cerulli.
The wealth of survey respondents ranged from $100,000 to more than $5 million, but were more heavily weighted toward wealthier investors, according to Cerulli.
Smith said that many of these investors indicated that they ended up at these firms through referrals and people they know, which underscores the importance of personal relationships and trustworthiness for these investors.
Forty-seven percent of these advised wealthy investors and 36% who do not have an advisor believe that a team of investment professionals offer the highest level of investment expertise, according to the survey. Both groups also chose a personal advisor, 35% and 24%, respectively, as their second choice. These responses, Cerulli, said, makes it “clear that management of investors’ portfolios is not the sole dominion of financial advisors.”
Smith added that the role of specialization is becoming more apparent to investors, noting that they are realizing that one person cannot do everything and having specialists take over elements of their portfolio is more efficient for the advisor “who could then spend more time talking with clients and figuring out their goals for the long term.”
The research also showed that fewer than 20% of the respondents said they would turn to locally based firms for advice. They also mostly reject advisory practices that offer only online engagement options.
As for what affluent investors look for in an advisor, the research showed that they want much more than portfolio performance. It noted that they want someone who provides comprehensive financial planning and understands their needs, goals and risk tolerance.
“These overall preference levels present a bit of a challenge to emerging registered investment advisors (RIAs) and independent broker/dealer (IBDs) advisors, as they rarely possess high levels of unaided awareness among prospective clients in their periods of critical advice need,” Smith said.
But he also noted that there are still opportunities for smaller firms to compete with the big-name brands. “It’s all about focusing on personalization and getting to know [the clients]” and offering financial planning, he said.
“We talk a lot about financial planning and comprehensive wealth management and that’s different for every firm and every client,” Smith said, adding that most people are happy with what they are getting but they also don’t know what else is out there because the core of what advisors offer is retirement savings and retirement portfolio growth. “But there is still much more to it than that,”
Advisors, Smith noted, have resisted the use of model portfolios and centralized home-office resources that their firms have pushed to free them up from certain tasks so that they could work closer with clients. But many advisors see it as undermining “their credibility with clients or decreases the value of their personal services overall.”
The report, however, pointed out that, “Not only does this option allow the home-office team to offer a more consistent client investing experience across the firm’s advisor base, but it also allows advisors to devote a greater percentage of their available time to client-facing activities, including ongoing discovery and new client acquisition.”
Cerulli said that based on the “efforts of firms to encourage the use of centralized portfolio management resources and an increased focus on goals-based planning—as well as affluent investors’ preferences in these areas—advisors’ skills going forward will need to be more focused on relationship management and behavioral coaching than on hands-on portfolio management.”