June 2, 2011

Mass Affluent’s Top Reason for Picking an Advisor

Spectrem survey of 2011 concerns shows stark change from 2009's.

The financial crisis has taken its toll on the psyches of the mass affluent. Where once they looked to performance and risk level, now their primary concern when choosing investments is the reputation of the investment provider, according to data from Spectrem Group in its new report, "Mass Affluent Investors 2011, Vol. 1," released Wednesday.

The mass affluent are those with investable assets of $100,000 to $1 million, not including their primary residence.

Tom Wynn, director at Spectrem, said in an interview with AdvisorOne that reputation has become more important among the mass affluent, who, incidentally, are likely in large numbers to rely on themselves for investment choices rather than going to a professional.

"One of the things we’ve seen with the recession, and that we’ve seen among companies, is that reputation has become more important,” Wynn said. “People are looking at the reputations of companies where their investments are made, and that’s becoming more important than, for instance, a company’s past track record."

He added that the phenomenon was "kind of interesting, because companies are always touting their track record and the things that they’ve been doing, but what’s really important to these people is the reputation of companies and the confidence they have in them."

Key Findings From the Survey

How much has that changed? In the latest survey, 81% of mass affluent investors ranked companies’ reputations as the most important factor when choosing where to make their investments—that’s more important than investment risk level (80%) and diversity (78%).

In 2010, just a year ago, risk level, at 79%, was the most important thing to them, followed by reputation (78%) and diversity (76%). But in 2009, the most important thing to the mass affluent was performance (97%), with impact on taxes coming in at 82% (compared with

70% for 2011) and social responsibility at 53% (fallen to 43% in 2011). In fact, in 2009, reputation wasn’t even an option in the multiple-choice question. Says Wynn, "These were much higher than what we’re seeing now."

Back to those self-directed mass affluent: Wynn says that there are 27.8 million households with $100,000 to $1 million in net worth, not including primary residence. That amounts to 24% of households in the U.S. And they are, according to the data, more likely than not to rely on themselves to make investment decisions. Over one-third of mass affluent investors (38%) are completely self-directed, say the data, while another third (32%) turn to an advisor only for advice as a result of a specific event. The report suggests that could be a combination of reluctance to trust someone else to manage their money and hesitation over fees.

With such a large potential advisor market going untapped, Wynn suggests advisors "point out [to these unadvised individuals] that the fees they pay and upfront costs will be recouped by increased returns in the future, and an increased sense of confidence that their money is safe." Showing them that their money is "building for the future in the most reliable way," says Wynn, and even presenting them with a cost benefit analysis, can lead to an entrée into a wide-open field.

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