Customers are changing the full-service investment advisory industry, says a new study, pushing advisors to become more hands-on but at the same time looking for a hybrid approach in which the advisor is more of a validator than a decision-maker.
The study, from J.D. Power, identified three segments of full-service investors—those defined by customer preference for making financial decisions in consultation with a personal financial advisor.
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The three categories are validators—those who want to make their own decisions, but still have access to an advisor for support and as a sounding board; collaborators—investors who interact with an advisor and depend on that guidance and advice for investment decisions; and delegators—who want an advisor to make decisions on their behalf.
The study found that the percentage of full-service investment advisory customers who are validators has increased steadily since 2013, and now accounts for 36 percent of all full-service investors.
On the other hand, the percentage of collaborators has fallen steadily during the same period (to 51 percent in 2016 from 59 percent in 2013), while the number of delegators has remained flat.
The trend is even more pronounced among millennials (born 1982–1994), with 64 percent falling within the validator segment this year.
Other findings revealed that investors say they are not getting goals-based advice; almost 4 in 10 investors (38 percent) indicate their advisor did not help them set goals or discuss risk tolerance, and only 42 percent indicate their advisor met key performance indicators (KPIs) related to setting goals, implementing strategy and ongoing tracking.
"The current evolution we're seeing in investor preferences will likely be accelerated by the further development of new technologies, such as robo-advisors, and by regulatory changes, such as those just issued by the Department of Labor concerning fiduciary standards," Mike Foy, director of the wealth management practice at J.D. Power, said in a statement.
Foy added, "Full-service firms will need to adapt to these changes by providing more value and transparency to investors, making a clear case for the value they provide vs. lower-cost alternatives."
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