Americans Spread Their Money Across More Firms, Survey Finds

According to a recent survey by Hearts & Wallets, nearly half (42%) of American households with $500,000 to under $2 million have four or more financial relationships, up from 36% of households in 2020.

Households with $2 million-plus were the exception, pulling back slightly from 3.9 relationships in 2020 to 3.6 in 2021.

Also, nationally, consumer trust in saving, investing and advice relationships is at its highest level since 2010, the survey said. Nearly half (47%) of customers report high trust for both primary and secondary relationships, up over 10 percentage points from 2010. Among generations, Millennials had the biggest jump in high trust for their primary and secondary firms.

Why Americans Are Using More Firms

Consumers have increased the number of financial-services firms they use over the past decade, noted Laura Varas, CEO and founder of Hearts & Wallets. Maintaining multiple saving and investing relationships is now the predominant consumer behavior.

One in five households now has 4+ saving and investing relationships, up from 1 in 6 last year. In 2011, less than 1 in 10 (8%) households had 4+ saving and investing relationships. Consumers have always had saving and investing relationships, and they now have more options, she added.

Consumers with certain attractive traits — higher education, higher risk tolerance and higher saving rates — have the highest number of relationships, Varas pointed out.

“The Hearts & Wallets hypothesis is that consumers deliberately seek diverse capabilities from different firms," she said, "and it would be difficult to counteract this preference by trying to meet every need for a consumer within one firm.”

As the number of relationships has increased, share of wallet at primary firms (where a consumer has the most assets) has decreased nationally, as consumers “diversified” away from their primary firms, Varas explained. Again, the exception are the wealthiest households ($2M+), which increased share of wallet at their primary store as consumers trimmed the number of firms used.

Average share of wallet dropped at all firms except for select banks (usually among lower-asset consumers). As consumers increase their number of relationships, achieving primary store status has become more challenging, Varas added. Firms and advisors need to learn how to survive and thrive in this world of multiple relationships, she said. Firms should develop service and pricing models that address the desire for multiple relationships where custody of funds is distributed.

In addition, firms can reimagine customer experiences and investment solutions to position them within an ecosystem.

‘Deliver products and services designed to retain highly sophisticated customers since most customers will have multiple relationships and are potentially at risk,” Varas advised. “Recognize that customers will hear from competitors with whom they have relationships.”

The biggest driver of share of wallet is being the main source of retirement advice for customers. Varas added. “As a result, the same firms that perform well on average share of wallet are also most likely to be the main source of retirement advice,” she said.

Increasing Trust

Nationally, consumer trust in saving, investing and advice relationships is at the highest since Hearts & Wallets’ tracking began in 2010, Varas said. The increase in high trust (9-10 on a 10-point scale) occurred in both primary and secondary relationships. In addition, trust in primary and secondary relationships is up across all asset levels, particularly in lower-asset households and in generations, with a big improvement among Millennials.

“Increased outreach and branding focused on Millennials appear to be working,” Varas said.

Millennial customers reporting high trust in their primary and secondary providers jumped to 45%, up +11 percentage points, vs. 34% in 2020. Gen X customers were also more trusting of their primary and secondary relationships in 2021 than they were in 2020, up +5 percentage points. Gen Z, the youngest savers and investors, are less trusting of their saving and investing providers than Millennials or Gen X. “Some branding / trust building work is needed with Gen Z,” Varas said.

As found through regression analysis in an earlier Hearts & Wallets research report, Trust Drivers 2019: Building Retail Investor Trust in the New Choice-Driven Marketplace, the main drivers of trust are factors within a firm’s control, Varas pointed out.

These include customer understanding of how the provider earns money, satisfaction with “understands me and shares my values,” “is unbiased and puts my interests first,” “explains things in understandable terms,” and “has low fees.” “Trust is a necessary, but not the only, condition for doing business,” Varas pointed out.

The Stores & Success Metrics: Firms Winning the Customer Wallet and Competitive Opportunities as Consumers Add Relationships report is drawn from the section of the Hearts & Wallets Investor Quantitative Database, which analyzes retail firms, or “stores” that consumers use, including share of wallet, reach, and trust. A total of 5,794 participants were included in the latest survey, which was fielded in September 2021.

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]