Investors prefer advisors who charge a fixed fee rather than charge based on assets.
For investors who do not yet have it made financially, the decision to use an advisor for investment purposes can all come down to the fees that are charged.
A Spectrem’s Millionaire Corner research report on wealthy investors revealed that less wealthy investors are less likely to use a financial advisor, even though they may have a greater need for one.
The study looked at investors from three different wealth segments: Mass Affluent, with a net worth of between $100,000 and $1 million Not Including Primary Residence; Millionaire, with a net worth between $1 million and $5 million NIPR; and Ultra High Net Worth, with a net worth of between $5 million and $25 million NIPR.
Investors were also segmented by their use of advisors, and Mass Affluent investors were less likely to do so. Thirty-eight percent of Mass Affluent investors said they were “self-directed’’ investors and do not use advisors, while 34 percent were “event-driven’’ investors who turn to advisors for specific investment needs. That’s a total of 72 percent who either don’t use advisors or use them sparingly.
By comparison, 58 percent of Millionaires fit into those two segments, and 50 percent of UHNW investors were either self-directed or event-driven investors.
Eighty-one percent of Mass Affluent investors believe fees are an important consideration when choosing an advisor, and 56 percent believe the cost of an advisor is “very expensive.” That percentage increases as wealth level decreases, with 63 percent of investors with a net worth between $100,000 and $499,000 saying advisor costs are “very expensive.”
But even among investors with a net worth between $750,000 and $1 million NIPR, 51 percent say advisors are “very expensive.”
However, 56 percent of Mass Affluent investors said they were “comfortable” with the cost of advisor fees.
Fees are the cost of doing business, and Mass Affluent investors view account growth as more important than the level of fees. Using a sliding scale where zero indicates fees being all important and 100 indicates account growth is all-important, Mass Affluent investors put the balance at a rating of 71.
Sixty-three percent of the younger Mass Affluent investors said they understand their advisor’s fee structure, while 81 percent of the investors aged 65 and older say they understand the fee structure.
There are different ways fees can be determined. Advisors can charge a fixed fee for services rendered, or they can charge a fee based on the percentage of an investor’s assets. Seventy-five percent of Mass Affluent investors prefer a fixed fee.
Kent McDill is a staff writer for Millionaire Corner. McDill spent 30 years as a sports writer, working for United Press International and the Daily Herald of Arlington Heights, Ill. From 1988-1999, he covered the Chicago Bulls for the Daily Herald, traveling with them every day through the nine-month season. He also covered the Bulls for UPI from 1985-88, and currently covers the team for www.nba.com. He has written two books on the Bulls, including the new title “100 Things Bulls Fans Should Know And Do Before They Die’, published by Triumph Books. In August 2013, his new book “100 Things Bears Fans Should Know And Do Before They Die” gets published.
In 2008, he resigned from the Herald and became a freelance writer. The Herald hired him to write business features and speeches for the Daily Herald Business Conferences and Awards presentations.
McDill also writes a monthly parenting column for the Herald’s Suburban Parent magazine.
McDill is the father of four children, and an active fan of soccer, Jimmy Buffett and all things Disney.