David R. Evanson

The Career Advisor, Winter, 2005

Inside the Mind of the Every Other 21st Century Investor
David R. Evanson

The title to this article derives its’ name from the December 2004 survey of investor attitude by mutual fund firm Eaton Vance which was called Inside the Mind of the 21st Century Investor. While the survey probes a variety of areas, and also broke down the numbers down across Bush and Kerry voters (obviously, they thought it was a close race), the most germane results for Career Advisor readers are the attitudes investors have toward financial advisors.

Apparently, among the 1,000 randomly surveyed investors – 500 with assets of less than $250,000 and 500 with assets of more than $250,000 – about half, or 48% use an advisor, 45% invest directly and the balance, about 7%, use both.

Do you primarily invest directly yourself or do you primarily use a broker or financial advisor? ALL
(%) <$250,000 (%) >$250,000
(%)
Direct investing 45 48 42
Broker/financial advisor 48 46 50
Both 8 6 9

Source: Eaton Vance

Perhaps somewhat discouraging, of those investors which invest directly, only 9 percent were “very likely” to engage a financial advisor in the coming year, 15% were somewhat likely and fully 75% were unlikely, and 1% simply did not know.

IF DIRECT INVESTOR: Would you say that you are . . . to use a financial professional in the next year? ALL
(%) <$250,000 (%) >$250,000
(%)
Very likely 9 8 9
Somewhat likely 15 18 13
Not very likely 34 36 32
Not at all likely 41 38 46
Don’t know 1 1 0
Source: Eaton Vance

One interpretation of these results is that financial advisors have reached a saturation point and will not materially be able to penetrate the resistance of do it yourself investors.

“This is an industry problem,” says John Crifasi with CEI Financial Planning in Atlanta, GA. “The public is unaware of what they do not know.” Crifasi believes that most individuals, even if they are experienced investors, would be much better off with assistance because of the complexities involved in structuring an maintaining an investment portfolio.

Art Stein, vice president of First Financial Group, Bethesda, MD, concurs. “I’ve seen the results of people doing this on their own and it’s not pretty,” he says. “When you see someone who was retired entering the job market all because they didn’t have someone sit down with them to look over their portfolio, it makes you wonder, ‘Why the resistance?’

Still, upon closer examination, Stein does see some rationality in the numbers, especially in the reasons why investors will turn to financial advisors.

For instance of those investors likely to seek the services of a financial advisors, 21% reported they were doing so because they had accumulated enough assets to make it worthwhile. “I think these results show that many people have made a rational decision to wait, while people with smaller portfolios are not yet calling financial advisors. That makes a lot of sense to me.”

IF LIKELY: Why did you say that you are likely to use a financial advisor in the next year? (Top reason cited) ALL
(%) <$250,000 (%) >$250,000
(%)
I have accumulated a significant amount of investments and now feel the need for advice 21 19 23
I no longer have time to manage investments 16 15 16
I have recently begun investing outside of a qualified retirement plan and now feel the need for advice 14 19 13
My investment goals have gotten more complicated 14 11 16
I lost money and/or had disappointing results when I invested on my own 12 11 13
Don’t know 11 11 10
Market volatility concerns me 5 4 6
I am now finding investment choices overwhelming 5 7 3
I have inherited a significant amount of assets 1 4 0
Source: Eaton Vance

Another reason investors will seek the help of a professional advisor is that they have begun investing outside of a qualified retirement plan. Fourteen percent of respondents never needed help because their plans were highly structured or were too small to warrant professional assistance. But now that they are out on their own, they want advice.

Finally, do it yourselfers are likely to turn to professional financial advisors because of time constraints. Sixteen percent of the survey respondents reported that they no longer have the time to manage their investments. “I suspect that many investors never had the time before,” speculates Stein, “But as their portfolios have grown, they have gotten older, and the stake have climbed, that they have recognized the just how much time doing this correctly requires.”

Crifasi and Stein, as well as many other advisors are troubled by the notion that financial planning is a skill that you can master on your own. Stein believes the financial media plays a role. “Investors frequently hear that they are not supposed to trust advisors, or that financial planning is something they should be able to accomplish on their own. It’s great for them because it increases the need for self help articles.” Whether or not the media is solely responsible for the high level of direct investment without professional assistance, Stein is unsure saying it would be speculation draw that conclusion. “I do know people that have reached the conclusion they can do this themselves, regardless of how they reached that conclusion, are kidding themselves.”