10 New Findings on How Investors Pick an Advisor

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10 New Findings on How Investors Pick an Advisor

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Industry Spotlight > Advisors

10 New Findings on How Investors Pick an Advisor

By Michael S. Fischer

Slideshow November 08, 2021 at 01:32 PM Share & Print

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Related: Top 14 Advisory Services Clients Want, but Aren’t Getting

How do investors choose their financial advisors?

The Ensemble Practice, led by Philip Palaveev, conducted a study in July to find out. Researchers surveyed randomly selected consumers with personal income of at least $100,000, and received 500 responses. The survey targeted both investors who have an advisor and those who do not.

See the gallery for 10 factors that influence how investors choose their advisors.

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10 New Findings on How Investors Pick an Advisor

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1. Forty-four percent of consumers have never worked with an advisor.
Only 32% of high-income consumers in the survey currently have an advisor. Ensemble Practice said these numbers represent a big opportunity for advisory firms.

Twenty-four percent have worked with an advisor in the past, but ended the relationship. “In other words, the advisory industry has already managed to disappoint close to a quarter of its investors,” the report said.

(Image: Adobe Stock)

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2. The decision to seek an advisor is not driven by a singular event.
Eighteen percent of the consumers surveyed could not identify a specific occurrence or challenge that initiated the search. Sixteen percent cited general anxiety over the ability to meet their goals, and 12% pointed to the urging of a friend or professional, such as a CPA.

The study found that just 11.5% of new advisor searches were the result of consumers being disappointed by one advisor and seeking another. Ensemble Practice suggested that once clients leave their advisor, they leave the world of advice altogether rather than look for a replacement.

(Image: Adobe Stock)

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3. Distribution strategies get clients in the door.
Firms that offer multiple services to the same client are successful. Thirteen percent of advisory clients said they initially engaged their firm for another service, then added advice.

Online searches and other resources also play a role.

(Image: Shutterstock)

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4. CPAs and attorneys are not big sources of referrals.
Only 4.7% of the sample found an advisor through one of these professionals. Ensemble Practice said this may be because many of them already offer advice and take advantage of the distribution strategy.

(Image: Shutterstock)

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5. Trust is key in choosing an advisor.
Twenty percent of consumers trusted the recommendations of family in selecting an advisor. Eighteen percent first heard about their advisor through friends.

Survey respondents gave equal weight to both the advisor’s reputation and the firm’s reputation in choosing an advisory relationship.

(Image: Shutterstock)

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6. Presentation and brand mean a lot.
Twelve percent of surveyed consumers said they selected their advisor after seeing an impressive presentation. And 11.5% said the firm’s brand mainly drove their choice — indeed, 49% of advisory clients surveyed work with a national brand firm.

(Image: Shutterstock)

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7. Performance trumps cost in choosing an advisor.
Investment performance is also quite important; 9.4% of consumers said they selected their advisor primarily based on performance.

Cost, on the other hand, is a less decisive factor, cited by just 4.7% of respondents. Very few consumers are looking to entrust their financial futures to the lowest bidder, Ensemble Practice noted.

(Image: Shutterstock)

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8. Many investors interview just one advisor.
Advisors should realize that often when they first meet with a client, that is their client to lose, the survey suggests. Thirty-six percent of respondents said they interviewed only one advisor. Another 20% interviewed two, and just over a third evaluated more than two advisors.

(Image: Adobe Stock)

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9. Opportunity knocks.
Fifteen percent of surveyed consumers without an advisor said they are likely to seek one out in the next year — an opportunity for advisory firms to attract these potential clients.

(Image: Shutterstock)

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10. Education matters.
Firms would also do well to educate consumers on how to make an informed choice of an advisory relationship. Twenty-two percent of respondents said they are not sure how to pick an advisor or do not have the time, and another 15% expressed concern about the potential for fraud or bad advice.

(Image: Adobe Stock)

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