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Advisor? What Advisor?


Those with an investment portfolio between $100,000 and $1 million, exclusive of their home, are becoming more independent. For the first time, investors have the power to help themselves. Many are taking it.

Those with an investment portfolio between $100,000 and $1 million, exclusive of their home, are becoming more independent, according to a survey performed by Spectrem Group.

This organization evaluates their proprietary investor research in order to deliver information to financial professionals and advisors that will help them with their clients. They also provide consulting services for the investment industry and produce publications based on their research.

The survey is centered on the responses of 1,500 qualified individuals in terms of household net worth. It is completed online by the person mainly responsible for making day-to-day financial decisions within the household

According to the study, the percentage of self-directed investors among the mass affluent in this study increased from 39% to 44% from 2009 to 2013. Coincident with this, the percentage of advisor-dependent households dropped from 15% to 10%. Even the advisor-assisted group (some help) decreased from 20% to 17%.

The Spectrem Group looks at these figures with alarm — possibly because they are selling their services to financial providers and advisors. The fewer clients that this group has, the smaller the number of customers the Spectrem Group can capture. A decline in mass affluent portfolios that is being managed by advisors means less money in their pocket.

To me, a more objective analysis is this: Financial providers and advisors aren’t going to put their clients into the most cost-effective vehicle that performs the best if they won’t be seeing some return from it. This means load funds and 12b-1 fees that take a chuck out of the client’s returns. Thereby, in general, these excessive fee funds perform more poorly over time.

When looking from this point of view at the figures Spectrem provides, the investor is serving himself by going independent instead of using an advisor. If he or she uses sound principles of investing, the result can be better over time.

One figure that is disturbing about the Spectrem data is the number of mass affluent investors that are event driven (see red section in above graph). The data suggest that news one way or the other stimulates 30% of the mass affluent investors surveyed to act precipitously. If so, this could be tragic.

For example, the investor who sells on terrorist news, the impact of which is likely to be short-lived. Then, the cost of buying and getting back into the market would almost certainly diminish any gain he or she made with the stocks/funds that were traded. This group might be better served with an advisor or by educating themselves about investor emotions and dynamics.

Another part of the study that may make it less useful than the information at first seems to glean is that standard deviation is not provided. Additionally, the methodology states that the person mainly responsible for making day-to-day financial decisions is polled. Other studies have indicated that this person is different than the family member that makes the major financial decisions in a household. More often it is the wife that makes the day-to-day financial choices and the husband who decides the major.

To me, what this study indicates is that at least some of the mass affluent are getting smarter about how they invest. This is a recent trend based on investor’s response to crises that resulted in their losing substantial monies — coincident with this, mass information about how to self-invest became readily available.

For the first time, investors have the power to help themselves. Many are taking it.

Read more:

Benefits of a Financial Coach Over a Financial Advisor

Taking Control of Your Finances

Bad Boy Brokers

Financial Adviser Secrets Exposed

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Victor J. Dzau, MD, gives expert advice
Victor J. Dzau, MD, gives expert advice