Research finds DIY investors continue to rely on financial professionals

While an increasing number of Americans rely on multiple sources of information and advice to make investment decisions, 20% of households cite some kind of financial professional as their primary source, according to a recent survey by Hearts & Wallets.

Many investors may say they want to manage their money on their own, but their stated preference doesn’t always match their behavior, explained Laura Varas, CEO and founder of Hearts & Wallets, an independent research and benchmarking firm which studies the financial services industry.

“The 10-year trend by investable assets shows consumers of all asset groups – except $2M+ – want more involvement in investment decisions than in the past,” she said, adding, “But that doesn’t necessarily mean they want to go it alone. Only 50% of households who say their preference is to ‘make decisions and manage money on my own’ consider themselves to have the ‘greatest amount of influence on [their] decisions.’ ”

"Financial professionals offer expertise that investors may not find elsewhere among other sources of information and advice."
— Laura Varas, CEO and founder of Hearts & Wallets

An increasing number of Americans rely on multiple sources of information and advice to make investment decisions, Varas said. Forty-three percent of households use 7 or more sources to at least some degree today, triple the 14% of households that used that many sources in 2010.

“Financial professionals offer expertise that investors may not find elsewhere among other sources of information and advice,” she added.

Financial professionals are the most likely to be the source that has the “greatest amount of influence on” household decisions, with 20% of households citing some kind of financial professional as their primary source, Varas added. A primary source, she explained, is the one “that has the greatest amount of influence on decisions.”

Investors are using multiple sources because they recognize there is a wealth of information and advice out there to help them with investments, especially with the explosion of online platforms.

“Our qualitative research tells us investors often use multiple sources to ‘check’ their primary or usual sources. Individuals may regard their financial professionals as their go-to source for advice, but they also want to confirm that advice with other sources – from online, friends and family to workplace programs,” Varas said.

Millennials with $100,000 to less than $1 million and $1 million-plus are the generation-wealth groups most likely to rely on a high number (7-plus) of sources, at least to some degree, Varas said. Baby boomers are much less likely to rely on a high number of sources to some degree, and this lower use of sources may relate to their higher reliance on an advisor, when they do have one. Boomers may have already tried a number of sources and found the one or the ones that work for them.

Generational preferences

Baby boomers are also the most likely to rely primarily on paid financial professionals, Varas said. Fifteen percent of boomers said they relied primarily on financial professionals in 2021, compared to 7% of millennials and 11% of Gen Xers. “Millennials’ and Gen Xers’ use of paid investment professionals is at its highest since Hearts & Wallets tracking began in 2010, but as a ‘usual’ source instead of the ‘primary’ source,” Varas said.

Baby boomers tend to be more traditional in their approach to financial services and either tend to use full- service- type models or no service at all, Varas explained.

Younger investors tend to experiment with a lot of different service models, including robo-advisors and other new models. In 2021, she said, 38% of $2-million-plus households said they relied primarily on paid financial professionals while 30% did so in the $500,000 to less than $2-million asset range.

Households with more money have the ability to pay for more service in financial advice, Varas said. So that’s part of the reason why more affluent households are more reliant on financial professionals. “What’s positive is seeing the increase in the number of lower-asset households,” she said.

Family is the primary source of investing information and advice for one in seven Gen Z and millennial households, but rarely for older households, according to the survey. Two out of three Gen X and millennials households rely on employer-sponsored programs to at least some degree, compared to only one in three three baby boomer households. By generation and wealth, boomers with $100,000-plus and the most affluent Gen Xers are the only groups with a significant number of households whose preference is to rely primarily on financial professionals. Even among these groups, this preference occurs in only about one third of households.

Tips for working with clients

Varas has a few suggestions for financial professionals work with consumers in this investment climate:

• Ensure customer segmentations include both investor attitudes and behaviors.
• Build offerings that include support from financial professionals while allowing customers to do some work on their own.
• Ensure new “hybrid” models are economically viable by defining interaction frequency and new pricing mechanisms.
• Identify the other influences on customer decisions to clarify how your capabilities are distinctive from the consumers’ other sources of investing information and advice, which may not even be direct competitors.
• Invest in online tools and resources.
• Be open and honest about fees and compensation as younger investors are very savvy.

The survey report was drawn from the section of the Hearts & Wallets Investor Quantitative Database, which analyzes how investors make investment decisions and their reliance on sources of information and advice. The latest survey wave fielded in September 2021 includes 5,794 participants.

 

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected]. 

© Entire contents copyright 2022 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.