A third of young investors looking to switch advisors, study finds

Almost one in every three millennial investors plans to switch advisors within the next year, according to new research from consumer insights firm J.D. Power.

Although research shows consumer satisfaction has increased overall among investors using financial advisors, it also found that affluent young investors pose the greatest flight risk.

Craig Martin, executive managing director and global head of wealth and lending intelligence at J.D. Power, told InsuranceNewsNet the issue boils down to a lack of quality engagement between advisors and this particular demographic of clients.

“Future growth and business success in the advice space is going to depend on establishing strong relationships and being able to effectively articulate the value provided,” he said.

‘Significantly low’ loyalty cited

J.D. Power’s annual Full-Service Investor Satisfaction Study assessed consumer satisfaction with financial advisors, but also considered potential weaknesses and areas where financial services could improve.

It found that, among Millennial investors with more than $1 million in investable assets, 36% plan to switch advisors within the next year.

A possible reason for this could be that 70% of affluent young investors already have a secondary investment firm to fall back on, according to the results of the survey.

Martin also noted that the top two reasons respondents gave were: due to recommendations from a friend, relative or colleague; and because they want better or more products, services, resources or tools.

However, he suggested the reason many want to switch has more to do with advisors failing to adequately connect with and convey value to their younger clientele.

“The above are the stated reasons clients gave to the survey question, but in reviewing the answers, a central theme that connects all of these is that the advisor or firm hasn’t provided the client with a clearly defined value proposition that resonates,” he said.

While the results concluded that many Millennial investors recognize the value in working with a trusted advisor, “what is delivered isn’t matching up with their expectations, so they are open to alternatives.”

Satisfaction linked to advisor trust

Despite the loyalty challenges, J.D. Power found that overall satisfaction is up by eight points, increasing from 727 to 735 year-over-year.

Satisfaction was ranked on a 1,000-point scale based on seven key metrics: trust, people, products and services, value for fees, ability to flexibly manage wealth, problem resolution, and digital channels.

The survey noted that client satisfaction tends to have a positive correlation with stock market performance. It added, however, that this trend could potentially become a risk factor among advisors whose clients base their value on market behavior.

According to Martin, one of the biggest factors driving customer satisfaction is strong interpersonal relationships, as clients are happiest with advisors they highly trust and have a strong personal connection with.

“When clients believe strongly that the advisor makes recommendations that are in their best interest, the advisor understands their values and aspirations and makes efforts to explain things in terms or ways the client understands, we see dramatically higher satisfaction and loyalty,” he said.

Deeper level of engagement needed

Nurturing the human element of advisor-client relationships is necessary for advisors to retain clientele and continue doing business in the future, Martin said.

“A large portion of the relationships today fall into a ‘transactional’ category that tends to be driven by product sales and focused on purely financial aspects,” he noted.

He cautioned that relationships formed on this basis tend to be the most vulnerable because clients stay only out of a belief that it would be too much of a hassle to switch, as opposed to out of loyalty or a belief in differentiated value.

“When these clients are approached with a strong enough value proposition — such as a recommendation from someone they trust, promise of better financials, better investment returns or lower costs — the perceived benefit of the change can outweigh the hesitancy to make a change,” Martin said.

At the same time, advisors were urged not to toss digital tools by the wayside. Martin noted that they are an increasingly important part of positive customer experience, especially for younger investors.

He emphasized that clients of all ages and levels of affluence have to come to expect the firms they work with to provide a minimum level of digitalization that can offer convenience and flexibility.

“Advisors who view human interaction as central to their value and fail to promote the role digital can serve as part of the engagement risk harm to their relationships and the value they provide, not to mention negatively impacting efficiency,” he said.

J.D. Power is a consumer insights, data analytics and advisory services firm founded in 1968. Their 2024 Full-Service Investor Satisfaction Study was conducted from January 2023 to January 2024, based on responses from 9,951 investors who work directly with a dedicated financial advisor or team of advisors.

 

Rayne Morgan is a content marketing manager with PolicyAdvisor.com and a freelance journalist and copywriter.

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