Millionaires have different relationships with advisors, and the depth of that relationship can affect financial decisions.
Seventy-eight percent of Millionaires use a financial advisor to some extent. But, investors use advisors to varying degrees, and it is very easy to miss-read a client’s perspective on what kind of relationship they want to have with an advisor.
Spectrem’s wealth segmentation series regularly asks investors to describe their level of advisor-dependency, and then surveys them on matters of personal concern, national concern and on issues related to finance and investment. The results show that Millionaires differ from others based on their advisor-dependency, or lack thereof.
The Spectrem study Financial Behaviors and the Investor's Mindset separates Millionaire investors into four categories of advisor-dependency: Self-Directed (those who make their own investment decisions with assistance), Event-Driven (those who only use advisors for specialized issues such as retirement planning or alternative investments), Advisor-Assisted (those who regularly consult advisors but make most of their own decisions) and Advisor-Dependent, which is self-explanatory.
Most Millionaires are either Self-Directed (31 percent) or Event-Driven (31 percent). Only 16 percent claim to be Advisor-Dependent. Keep in mind that 78 percent use an advisor on some level. The Self-Directed investor will accept advisor assistance but may not place any of their assets with that advisor.
An Advisor-Assisted investor may actually have indicated that the advisor has full discretion. However, with these investors, advisors must realize their client wants to be very involved with the investment decisions. If the client is not treated in this manner, the client will not be satisfied with the advisor relationship.
There is a clear demarcation between Self-Directed and Advisor-Dependent Millionaires when the subject of wealth creation is examined. Only 24 percent of Self-Directed Millionaires claim inheritance played a role in their wealth level, while 42 percent of Advisor-Dependent benefited from inheritance. However, when considering “taking risk” as a wealth creation factor, 60 percent of Self-Directed and 61 percent of Event-Driven Millionaires said it had an effect on their wealth level, while only 48 percent of Advisor-Dependent Millionaires agreed.
The matter of investment risk is expressed in another category. Asked if they are willing to take a risk with a significant portion of their investment portfolio in order to earn a high rate of return, 46 percent of Self-Directed Millionaires said yes, 38 percent of Event-Driven said yes, 37 percent of Advisor-Assisted agreed but only 28 percent of Advisor-Dependent did so.
There are also differences in optimism among Millionaires of different advisor dependency levels. Forty-five percent of Self-Directed Millionaires believe their financial situation will be better one year from now, while only 34 percent of Advisor-Dependent Millionaires are that optimistic.
Millionaires were asked about their level of concern on national issues, and in general the more advisor-dependent the investor, the more concerned they are. The greatest separation was in financial matters such as inflation (63 percent of Advisor-Dependent to 48 percent of Self-Directed) and increases in the interest rates (45 percent to 34 percent).
On personal issues, there were more variations, although still not a topic about which Self-Directed Millionaires had greater concern than Advisor-Dependent ones. “Maintaining my current financial positon” was a concern for 61 percent of Advisor-Dependent Millionaires but only for 46 percent of Self-Directed Millionaires. When the concern was a family health catastrophe, 59 percent of Advisor-Dependent Millionaires admitted to worry while only 45 percent of Self-Directed Millionaires did so.
It was interesting that while optimism for one’s personal financial future was lower among those Millionaires most advisor-dependent, it was higher from that same group when discussing their children’s financial future. Asked whether they agreed with the statement “I believe when my children reach my current age, they will be better off than I am now”, 35 percent of Advisor-Dependent Millionaires and 31 percent of Advisor-Assisted Millionaires agreed, while only 29 percent of Self-Directed and 26 percent of Event--Driven Millionaires agreed.
It is imperative for advisors to know an investor’s point of view regarding the working relationship they are going to have. The level of advisor-dependency goes a long way toward determining the depth of conversations and the extent to which the advice given will be acted upon.
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.