Advisors have a public relations problem, according to a new Morningstar report.
U.S. investors, including those with and without a financial advisor, ranked advisors at roughly the same level they ranked trading platforms and business and financial news websites for value provided.
Morningstar conducted an online survey of more than 2,000 U.S. investors over the age of 18 during the last week of January with the aim to “provide a pulse on the wide-ranging attitudes, behaviors, and preferences of investors.” Survey participants’ backgrounds ranged across gender, geography, age, types of employment, ethnicity, household income, and investable assets.
Nearly 60 percent of investors surveyed said professional financial advisors were an extremely or very valuable source when looking for information on a new investment. A similar percentage of people surveyed said the same thing about investment and trading websites, accountants and tax advisors, business news sites like the Wall Street Journal, and financial websites like Yahoo Finance.
The takeaway: Financial advisors are struggling to show their worth to investors who have ready access to other sources of information.
Additionally, while at least 80 percent of those who had worked with a financial advisor for at least three years found financial advisors extremely valuable, only about 30 percent of those who hadn’t worked with a financial advisor said the same thing.
“There are definitely ways that advisors specifically add value to somebody’s financial life or journey, but the problem seems to be conveying that value,” Joe Agostinelli, senior director of marketing research at Morningstar, told RIA Intel.
Investors who used a financial advisor cited a few primary reasons for relying on their services, including changing economic conditions (53 percent), tax season (31 percent), and life events (28 percent).
“This suggests that investors depend on advisors during transitions, to help them take action and make decisions that will help them achieve their goals. On the other hand, other sources of information have not been able to provide the education for the majority of people to feel they have a strong understanding of relatively basic concepts like getting financially organized or having a short-term or long-term investment plan,” Morningstar said in the report.
The study indicates there are several ways that financial advisors can provide value. Educating investors, gaining knowledge about emerging assets, and addressing risk are all ways advisors can address the needs of investors.
Twenty-six percent of people surveyed said they felt uncomfortable making investment decisions and of those, 65 percent said they don’t have enough knowledge to make the right decisions — the top reason for lack of comfort with investing.
“These are not rookie investors,” wrote Morningstar. About 95 percent of the survey participants said they were their household’s investment decision makers and those who actively invested had been doing so for an average of 15 years.
Those uncomfortable making investment decisions held the largest chunk of their investable assets (42 percent) in cash and liquid assets.
Emerging asset classes such as cryptocurrencies could provide an opportunity for advisors to add value to investors. Fifty-nine percent of respondents said they did not believe they could easily invest in emerging asset classes and 75 percent said they did not have a good understanding of emerging asset classes.
Maintaining the security of assets with the lowest amount of risk was one of the top three factors investors said they considered when thinking about their investment strategies. Maximizing returns and minimizing losses on all investments and finding the best financial advisor to meet their unique investing needs were the other top factors.
“Taken together, these top three factors suggest that risk management is critical to investors,” Morningstar said in the report.
Agostinelli added, “Risk management is one of those areas where financial advisors provided quite a bit of lift. So, I think I think that could be an area of focus that could add a lot of value.”