Unlocking Real Value Blog

Why Are More Investors Going It Alone?

So much of the focus today in the advisor world is on the relative growth of RIAs vis-a-vis their competition at wirehouses and other traditional B/Ds, what often gets lost is the investors that they are all going after. And recent statistics show a worrisome trend – the trend of investors deciding to “do-it-themselves” has taken on momentum.

This trend favors banks and self-directed firms and the expense of full-service firms. According to a recent study by Hearts & Wallets, most firms showed a decline between 2011 and 2012 in investors “intent to invest more” and “intent to recommend.” (Two exceptions were Vanguard and T. Rowe Price.) Full-service brokerages share of households with $1 million or more to invest fell from 36% in 2011 to 32% in 2012. On the other hand, banks share increased from 13% to 17% during the same period of time; the survey data used included 5,400 households. According to the results, less than 2/3 of investors now use an investment professional.

The question is, why are investors so frustrated? The study indicates that investors:

  • Don’t understand their advisors’ (or potential advisors) value proposition
  • Don’t understand the pricing models; and
  • Don’t feel that they have a way to evaluate advisors other than using absolute return.

I actually see some good news in this. All three of these frustrations, while understandable, are easily addressed. Let’s take them one at a time.

If an advisor doesn’t have an easily understandable and visible value proposition which they can articulate, then they don’t deserve the business. Whether you have an elevator speech, a tag line or a mission statement, you better make it clear very early on why you are different from the thousands of other advisors out there. If you don’t, shame on you.

As for pricing, if you aren’t upfront about your pricing, and if it isn’t fully transparent, then you have a problem. This is another issue that if addressed head-on early in the relationship can actually be used as a selling and differentiating point. If you wait until the client has to ask about it, then it’s probably too late.

And on the measurement issue, advisors would be well served to adapt some version of goals-based analysis. If you take the time upfront to learn about the client, help them define goals and milestones, and show them a pathway to get there (and measure progress along the way), you should have a long-term client; if you don’t, then maybe you’re in the wrong business.

There is great opportunity for those advisors that rise to the occasion – because I have no doubt that many of these investors who try to go it along are going to be very unhappy with the results and will be looking for an advisor again very soon.

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