Affluent Investors’ Confidence Slowly Rebounds, but Loyalty to Advisors in Flux

Many affluent investors are still risk averse and not confident about reaching their financial goals despite the significant rise in equity markets since September 2008, according to a new survey by Northstar/Sullivan.  

The study found that although trust in financial institutions and advisors is on the rise, a growing number of investors appear willing to leave their current financial advisors and move their assets elsewhere. 

The second edition of the Northstar/Sullivan Rebuilding Investor Trust study sampled 1,290 individual U.S. investors with investable assets of at least $100,000; 15% of those polled had investable assets exceeding $1 million.

The comprehensive market research study was conducted to help financial services companies better understand the mindset of today’s affluent investors, Barbara Sullivan, managing partner of Sullivan, said in a telephone interview with AdvisorOne. Four risk-tolerance themes emerged from the study, she said, one of them a surprise.

Investors are becoming less conservative, but have a long way to go to reach prerecession levels. Whereas 22% of people in 2008 perceived themselves as somewhat or very conservative, in 2009 when the first study was conducted, it jumped to 54%. It then fell back to 41% in the most recent study.

Investors become more conservative as they grow older. Among four age groups surveyed, the youngest people were the least conservative and the oldest people the most. Specifically: 26% aged 25 to 45 viewed themselves as somewhat or very conservative up to 52% of people aged 65 and older.

Women are more conservative than men. Fifty percent of women saw themselves as somewhat or very conservative, versus 34% of men.

And in something of a surprise, according to Sullivan,attitude toward risk varies with marital status. Divorced and widowed people were more conservative than single or married (or partnered) people. This was true for both men and women. Sullivan said there probably was some age overlay in this finding, but the study turned up insufficient data to break out the age differences.

The survey findings affect investments in two major ways, Sullivan said.

One is unexpected. “Although people are becoming less conservative, they have buckets of money in cash, and most surprising, those with the most money in cash are the youngest people,” she said. Forty-four percent of those surveyed aged 25 to 45 have at least half their assets in cash, compared with only 25% for people aged 65 and older who have half or more of their assets in cash.

Sullivan said this was surprising because one would expect younger people who are less risk averse to have more money in noncash assets, yet they have the most money in cash. Her analysis: “We know that the people who don’t have an investor relationship are much more apt to have more money in cash. Twenty percent of