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Who Wealthy Investors Pick as Their Advisors

Affluent investors have specific characteristics that determine the type of financial advisor they choose, according to a Spectrem Group report called Investor Profiles and Their Preferred Advisor. These characteristics range from how much investment knowledge they have to how much they trust their advisor.

Below are the seven types of advisors and the affluent investors who typically choose them. Spectrem surveyed investors with a net worth between $100,000 and $25 million, not including primary residence. (For related reading, see:10 Common Traits of Wealthy Investors. )

Seven Advisor Types

Full-service brokers: This segment of advisors is the most popular among the affluent investors who participated in the research. Full-service brokers have the oldest clients, with an average age of 63. Almost all (92%) are retired or semi-retired. They also have the highest percentages of conservative clients (17%) among financial advisory firms.

Independent financial planners: These advisors are the second most popular choice. Like full-service brokers, the majority of their clients are retired or semi-retired (91%). Clients of independent planners are more moderate when it comes to investment risk than investors who prefer other types of advisors. The report also found that 69% of investors using this type of advisor would stay with them if they left their firm.

Investment managers: This type of advisor has the highest percentage of investors who are either advisor-dependent or advisor-assisted. Both kinds of investors have a high degree of dependence on the knowledge of their advisor. Almost 30% of the clients of investment managers claim to have little or no investment knowledge. Like with full service brokers, the average age of clients of investment managers is 63.

Registered investment advisors (RIAs): Spectrem found that investors who use RIAs are the least likely to risk part of their investments for a higher rate of return (29%). RIAs get the second-highest level of trust from investors. Independent financial planners rank highest in that regard. The clients of RIAs are also among the most likely to recommend their advisor to others (72%). (For related reading, see:RIAs: How to Find and Foster Your Firm's Successors. )

Bankers/private bankers: While Millennials make up only a small portion of investors at this point in time, bankers have the highest percentage of this generation of investors. At the same time, they have the smallest percentage of Baby Boomers. Only 17% of investors using bankers are still working. This is the highest percentage among the seven types of advisors. Clients of bankers are also more likely to be conservative when it comes to investment risk (20%).

Mutual fund company representatives: Clients of mutual fund company reps are more likely to be knowledgeable or very knowledgeable about investing. More than half like to be actively involved in the day-to-day management of their investments. They are also the most optimistic about the future. Over half (57%) expect their financial situation to improve during the next 12 months.

Discount brokers/online brokers: Investors who use discount or online brokers were the smallest group in the report. They are predominantly male (71%). Just over a third (35%) say they are aggressive or most aggressive in terms of investment risk. Almost 60% say they enjoy investing. The report also found that these investors have

the lowest percentage of those who say their financial situation has improved over the last year. (For related reading, see:How Millionaires Say They'll Invest in 2016. )

Opportunities for Advisors

RIAs and independent financial planners appeal to families that are still working. These firms often provide more holistic planning-based services. Spectrem suggests that by broadening the types of advice and planning available, other types of advisors may become increasingly attractive to working households. In particular, it recommends that full-service brokers and investment managers build a practice that is appealing to working households as many of their existing clients tend to be older.

Because many investors who use RIAs are less likely to consider themselves knowledgeable investors, this provides RIAs the opportunity to help to educate them and increase their loyalty.

Investors who are clients of RIAs or independent financial planners place the highest importance on returns. Spectrem maintains that it is critical for these types of advisors to remind investors how their investments support their overall plan. “It’s easy for investors to believe that the return should be higher, however, many may need to be reminded about the overall risk and how they should focus on their ultimate goals,” the report states.

Investors who use an RIA, financial planner or full-service broker are much more likely to recommend their financial advisor. Spectrem suggests that these types of advisors should ask their clients to recommend them when possible. (For related reading, see:Wealth Management: How the Billionaires Do It. )

Other Key Findings

  • More than half of investors trust their financial advisor for the majority of their financial needs. One-third relies on their advisor for investments like real estate or alternative investments.
  • Investors manage more than half of their assets with no input from a financial advisor. Just 16% of their assets are totally controlled by an advisor. Those who use a discount broker control more than three-quarters of their assets with no help from an advisor, while investors who use an RIA allow an advisor to handle 32% of their assets with no input from themselves.
  • More than half of investors want to see greater returns on their investments and almost one-quarter want lower fees or lower cost products.
  • Investors who use an independent planner, RIA, full service broker or investment manager are the most satisfied with their advisor, while those who use a discount broker or mutual fund company rep are much less satisfied.
  • A majority (80%) of investors have been with their primary advisor for at least three years and more than 40% for at least 10 years. Thirty-percent who use a full-service broker have been with their advisor for 15 years or more.
  • At least two-thirds of investors who use an RIA, independent financial planner or full service broker have referred their advisor to someone they know. Only one-third who uses a mutual fund company rep has done the same.

The Bottom Line

Affluent investors have particular characteristics that decide the type of advisor they choose. Advisors who are looking to attract clients who aren’t typically in their camp should consider building services into their practices that appeal to them. (For related reading, see:Wealthy Clients: How Advisors Can Nab More of Them. )


Category: Advisor

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