Yesterday morning, Schwab released its fifth semi-annual survey of independent registered investment advisors. More than 1200 independent advisors with more than $300 billion in assets under management completed the survey, which was conducted from Jan. 20-Jan. 30, 2009. It reported a phenomenon that I have observed but only anecdotally: there has been a sea change in how Americans view their financial advisors and seek financial advice.
This is my version of the "Sea Change"
45% of independent advisors’ new clients over the last six months came from the embattled full-service brokerage industry. What does this mean? It means people with investment assets left Merrill Lynch and went to "Joe the Advisor" in order to get more independent investment advice. When asked, investors overwhelmingly cited loss of trust and a desire for more personal adviceas the top two reasons for switching advisors and choosing an independent advisor.
What does this mean for clients? It means a bunch of things that are nearly all positive (rare positive news): (a) your financial advisor - whether at a big shop or a home office - is much more likely to realize that more personal advice will advance his or her clients' satisfaction; (b) you can demand more personal advice; (c) you can ask more questions without fear of being labeled 'too cautious,' 'naive' or 'stupid'; and (d) you can probably get them to do things they might not have done before - things like calculate your best financing options for the car loan, or share research about your kids' college financing, or review your 1040 for additional tax ideas for 2009. Of course, they might also suggest you consider putting together a will or trust, or updating your existing living trust.
What does this mean for advisors? First and foremost, you need to provide more personal service. This means taking those uncomfortable phone calls, of course. But it also provides an opportunity to get out of the rut of defending last-years' results. Unless you were accidentally in cash (and the only serious investors I know who were in cash were there accidentally), everybody did awful last year. So forget about whether your clients were down 45% or merely 35% - the misleading metric of a bad return in an awful market is just not what makes clients come to you or stay with you. They want advice on things that affect their lifestyle: how to pay for the new car they need to replace the 2004 model whose five-year lease is expiring; how to best carry the cost of tuition at Stanford; or how to evaluate whether it makes sense to pay for that private school 3500 miles away and where the money is going to come from. They want to know whether they need to update that old trust now that asset values have changed and the applicable exclusion is $3.5 million.
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