Less-Educated Investors Are More Loyal to Their Advisors

Here's some advice for financial advisors who are competing for clients with digital and Internet-based advice providers: You may want to give serious consideration to building your book of business around investors who do not have college degrees.

That’s because investors with less formal education, compared with more educated investors, were more loyal to their advisors than college-educated investors were. They also are more satisfied with the service their advisors provide than those who have degrees are.  This was revealed in new research by Cerulli Associates.

Investors without four-year college degrees – airplane mechanics, underwater welders or high-rise steel workers, for example – may be successful and highly compensated in their fields.

But those same investors often lack the confidence, expertise, time or interest in taking an active role in their financial affairs. As a result, they tend to rely more heavily on advisors, Cerulli said.

In short, lesser educated investors remain content with concentrating their assets around one financial advisor or advisory firm.

The findings appear in the latest edition of the U.S. Retail Investor Edition of The Cerulli Edge.

More Education, Less Loyalty

Loyalty to advisors “drops significantly” as educational achievement levels rise, Scott Smith, director at Cerulli Associates, said in a news release.

The findings may strike some people as counterintuitive, but they are not.

The higher an investor's level of education, the more likely the investor is to move assets to other advisors, or to split the assets among different advisors, the research found.

Many college graduates also tend to be self-directed investors, for example.

Investors with advanced degrees are more likely to seek advice to deal with special events – a wedding, a birth or a death – or retain final decision-making authority for themselves, even if they have a long-term relationship with an advisor, Cerulli researchers found

Huge Potential Market

Investors without a four-year college or university degree represent 68 percent of all U.S. households, Cerulli said.

That’s a huge potential market for advisors competing for new, younger clients weaned on digital advice and chased by direct-to-consumer channels.

More than half (52 percent) of investors without four-year degrees report holding at least 75 percent of their investable assets at their primary provider firm, Cerulli found.

By comparison, only 42 percent of four-year college graduates report holding at least 75 percent of their investable assets at their primary provider.

Only 39 percent of investors with advanced degrees report  holding 75 percent of their assets at their primary advice provider, the research found.

Satisfaction High Among Segment

Investors with less than a four-year college degree were more satisfied with their advisors than investors with higher education levels, the research found.

Higher satisfaction levels is a key metric to generating more referral opportunities.

On a seven-point scale, investors without a four-year degree posted a satisfaction level of 6.46. Investors with a four-year college degree posted a level of 6.09, and investors with advanced degrees posted 6.17, the report found.

The average of all respondent households was 6.21.

“It should be noted that those without four-year degrees consistently express the highest levels of approval of their current relationships,” the report said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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