How can financial advisors target the 50 percent of Americans that are not investing currently?
I've read in Marketwatch, Reuters, and Bloomberg that only 50 percent of Americans are investing. I know that some financial advisors want clients with over $100,000 to invest. However, I am wondering why more advisors are not targeting this half of Americans, or why this half of Americans doesn't seek out financial advice or investment advice from financial professionals. They may not have as much to invest, or anything, but isn't it the job of an advisor to try to increase the number of people who are investing? What are strategies that advisors can use to target this population?
Much about investing is situational. Calls to my office are usually prompted by some financial event. Perhaps a divorce, death, retirement, or change of job. That is not always the case, but something often spurs the investment interest.
I’ve noticed over many years of helping people that finance isn’t a priority for most people most of the time. In fact, most people are busily managing their family, jobs, recreation, and time … if they have money to fund those activities, investing probably isn’t on their radar. Until some financial event happens.
Truthfully, there’s not much value in approaching those people before the right moment because their attention is necessarily elsewhere. I compare it to certain kinds of advertising; snow tires don’t attract much interest in July, but those days surrounding the season’s first snow are magic for retailers.
One last point. A small segment of people love finance and investing. Those people tune to CNBC, and read every book and article they can find. Finance and investing is a hobby to them and their interest never wanes. A lot of advisors have this level of interest, too. My observation is this: it’s really hard to stimulate that level of interest in others. You may wish that family and friends cared that much, but most of them aren’t going to care until they encounter a financial event.
This is a great question, and you are correct in that many advisors have asset minimums. This is due to the business models many of the bigger firms earn. They either make most of their money off selling commissioned products like insurance or individual stock purchases, or they do fee-based where they charge on assets under management. If you do mostly fee-based and charge 1%, obviously it becomes much more difficult to make money and scale if you're only making 1% on $10,000 accounts. This is changing a lot though. I spent years in the bank-run private wealth management world and saw all the flaws in this system, so much so it spurred me to leave and go independent where I would be able to work with people regardless of asset level and that is exactly what I've done. My workaround for this is to charge a monthly retainer ($75/mo in my instance) to provide comprehensive financial planning and investment management to those who don't have the level of assets to justify an assets under management fee. I work predominantly with young professionals now and many of them fall into that category of not having assets and this is just how I like it. I want to be working with people now while time is still on their side. That way I can help them establish healthy financial habits early on and provide an opportunity for them to take advantage of the powers of consistently investing over long periods of time so they can be one of those people with great wealth down the road.
Great question! I think the answer might be found in your question of "what is the advisor's job?" Ultimately, of course, financial advisors would like everyone to be investing for the future. But, financial advisory is a job. Jobs, for financial advisors (just like teachers and plumbers and nurses) need to be paid, and here is the rub with the 50% who aren't getting financial advice.
People can pay for financial advice in a variety of ways: Invest in products that pay a commission to the advisor, an annual fee based on the amount of investments managed by the advisor (here is where you often see the $100,000 number), or pay for advice by the hour (like and attorney or CPA). Any way you do it, there is an assumption that some amount of money has been saved and can be invested by the client. Sadly, many people either don't save (bad habits) or can't save (low income/high bills). This is where the disconnect between financial advice and who needs it often comes into play.
It would be so nice if there were FREE financial advice at the time when people really could use it to build their futures. Here, I'm referring required high school classes on personal finance. How lovely if our teenagers were all educated in a consistent manner before they get out into the working world about budgeting, saving, loans, etc. Then, more of our workforce would naturally have money to invest and engage professional advis
The good news is that many financial advisors do provide pro bono advice. This comes in the form of Financial Planning Days across the country sponsored by the Financial Planning Association, and other volunteer opportunities taken on by those in the industry. Unfortunately, that is just a drop in the bucket of need for financial education.
As you can see, I could go on and on about this. There are solutions, and I have hope. Many advisors are offering free classes on YouTube, so there is more opportunity for investment education for free.
I hope that helps.
Why 50% of Americans do not seek out financial advice or investment advice from a financial professional?
I thank you for the opportunity to provide my belief about this important question, obtaining financial advice .
There are a great many of the 50% of individuals who do not utilize financial professionals who lack a clear understanding of what a financial advisor does to benefit you and your money for the long term. Professional competent advice done early and consistently, will have an enormous impact on the lifetime of a financial portfolio. Lack of knowledge and discipline that comes with knowledge, makes it extremely difficult to cultivate disciplined habits of saving and investing in solid value and growth businesses for the long term of a portfolio even a portfolio which may start with only $100 each month compounded over time can amass a small fortune. We as responsible advisors must be armed with the duty and the responsibility of caring for people to mentor learning, to encourage excitement, to get the word out and to assist all to reach diligently to achieve through focus and discipline and emotional intelligence the ultimate goal of financial independence! Knowledge will breed a change of mindset sufficient to move mountains.
With the lack of knowlege comes a lack of trust in sound and stable advice.
What is the style of investing that a particular investment professional feels comfortable promoting in his business. Is the individual sufficient aware and educated and knowledgeable in the methodology utilized for investing his funds actively or passively, long term or short term. What's are potential conflicts of interest to utilize one financial advisor over another fiancial advisor or should you utilize more than one advisor? Does one advisor promote specific products because of high fees generated? Is there complete disclosure when the money is deposited and invested? Has there been adequate and sufficient informed consent to all risks and benefits. Is the individual aware that all investments in the market have some degree of risk, some more risk than others. What is the training that backs the advice of an advisor? What is their history and background. What are they selling? Advice? Products? What are the fees to invest, clear projections going forward.
People are so busy with day to day life that to take time out of a day to speak with a financial advisor about things they do not yet seem competent to discuss may appear overwhelming and almost impossible to fathom. It is up to the entrepreneurial advisor to think of ways to empower change, to stimulate learning and to attract people who otherwise would not be involved in learning and growing in knowledge about stimulating markets.
As the individuals who should be seeking the advice to build a solid portfolio of assets are busy, so too are many advisors who do not take the time to push themselves outside of their comfort zone to teach and mentor growth of learning. It is my belief that more not less individuals will seek advice with knowledge and support. Though there exist many fabulous self guided ways to invest either remotely or via a robo advisor, sound advice, trust in a fiduciary professional is far superior and worth the reasonable fee vs gains.
Stimulation of questions and answers is paramount via chat rooms, blogs, mentoring forums, FACEBOOK GROUPs (EMPOWER YOUR MONEY), financial websites INVESTOPEDIA (investment professionals answer questions about individual financial issuesis) and financial resources. Until an individual does come to the plate, actually understand the investment process and work with someone who cares and empowers knowledge about investments, the individual lacks the necessary "buy in" to the concept of savings and investing to become so disciplined and so focused that steps are taken to create the change necessary to move mountains.
A roadmap of change can not be formulated comprised of a detailed view of budget and anticipated change unless and until clarity and education is grounded and belief in the goal can be visualized. Baby steps must be taken via education first to construct a clear understanding of the financial markets, understand the winners within the markets, the styles and patterns of investing, the risk tolerance of investing and the identification of select winning companies and businesses for which we must then dedicate much time to examine each 10k.
There are dynamic resources each financial advisor can utilize to make the world of investing understandable and realistic. There is a growing effort to create a broader understanding of "financial fitness" through blogs, websites, chat rooms and other collaborative methodologies. It is not difficult nor impossible to tap into one or more of the apps or web sites to learn something fresh and new each and every day. It is the revolutionary financial professional who understands the great need for information out there and connects with as many individuals as possible to build the mass of people excited and invigorated in learning and growing wealth.
Acknowledging the great people who have come before us to pave the way to financial independence makes the journey fun and do-able. Story telling about financial icons, Warren Buffett, Benjamin Graham, Karl Icon, Steve Jobs, Elon Musk, Marc Benioff, Jeff Bezos and others. Knowing it is possible for anyone to attain financial independence is sweet. The goal is about the dedication and the power and motivation to succeed.
For my part, the caring part of the financial business comes first. I believe this is felt and experienced once you get to know someone, talk about family, engage in important confidential conversations, communicate care. To get people to the point of seeing what is possible and then to watch people make necessary change to see change happen is why I am doing what I am doing. I am the educator, the client is the change agent.
When fees are explained as is the price to own and maintain a car than the charging of management fees becomes something that is understood rather than something shunned about. Clarity as trust is earned.
My practice starts with the education and knowledge I can share with clients in a dynamic and creative way. I reach out to individuals in diverse groups and settings to seek to empower the knowledge about the power of saving and investing. If you paint a trusting roadmap, and make it clear and appealing, they (clients) will come. For example, I started out to invest in a farm reserve, all weeds, it is transformed into a fabulous farm estate for our meetins and events. I share stories of individuals who methodically put away their money who have amassed a fortune by regular and systematic automated investing while keeping debt in check to a minimum.
I work to build trust first because for me the investment relationship is a collaborative relationship. It is not a relationship where I am simply doing something to the money of another individual. Dynamically, the client is coming to the solution himself, an individual plan of action comes about only if I was able to formally illicit a clear understanding of the steps chosen to build wealth. (Conservative, Value, Growth, Speculative).
My passion comes with mentoring High School Students and Young Millennials with a regular weekly Power Lunch about the Stock Market. First we spend time to understand what it is to possess a "money and savings mindset". We discuss how in the past each Millennial was taught to deal with money. We discuss why it is important to save early and often and the benefits of compounding over time. We discuss a budget and the importance of managing and paying down bad debt based on different variables such as interest rates.
We learn, read, grow, research stocks both fundamentally and technically. Together we form a mini Hedge Fund and together we buy and hold and sometimes sell stocks dynamically and virtually in dummy accounts.
We create a board room atmosphere where we understand and discuss our purchases and our sales. We make the adventure of investing on the markets fun and engaging. In my past, I took on student interns at UBS Paine Webber when I was a Stock Broker in San Francisco who came mostly from UC Berkeley. Many former students have gone on to become extremely successful Hedge Fund Managers, Financial Analysts or other challenging, dynamic positions nationally and internationally involving the markets.
I was honored to answer your question about why more Americans do not seek out Financial Advice from a Financial Professional. Should you have any further questions in the future I am always available to assist.
Janet Grace Beers Attard, MBA, RIA
J. Oliver Maxwell, LLC
FACEBOOK: EMPOWER YOUR MONEY
As Kristi and Chad mentioned, there are some valid reasons some folks do not invest. Some advisors do have minimums, and these are high for many potential clients. However, there are a number of other reasons people do not save.
In 2002 when I started to look at Financial Planning as a career (I transitioned from a career in technology) I interviewed about 50 people. One of the questions I asked was if they work or had they worked with an advisor. For those that did not, the biggest reasons given were:
- I don't have enough money, no advisor will work with me. I learned this isn't really true. In fact I have a number of clients just starting out.
- They are all crooks. Upon more discussion, the opinion came from stories in the news about people losing money in ENRON, WorldCom, and the tech bubble. None of the people I interviewed were hurt, but it was enough to scare them.
- It's too dangerous. Again, this came from people looking at the news and rumor.
- It's too expensive. Financial advisors charge too much. I heard from <insert talking head name here> on the radio/TV I should do it myself and save money. When asked if they started, the answer was generally no because they didn't have time.
However, I learned over the 15 years or so I have been in practice that while these points of view may have some validity, there is often a greater truth:
- Not all advisors have minimums. We do not have minimums in my firm. In fact, when I get calls from marketing firms offering ways to reach High Net Worth clients, I usually say no. Those folks have enough advisors trying to get their business. It doesn't mean I don't have seven figure clients in my book, but they were generally referred to me from clients with less money.
- There are some bad actors, but when I was a compliance manager, I found most errors were from over eagerness to please (and not always on commissioned placements). I found some advisors just needed additional guidance. In settings where I spoke with people from other firms, it was clear they truly did not understand the product they sold. They weren't crooks, they just needed better training. If the fault was anywhere, it was in supervision.
- The danger is people see the market's ups and downs on a nearly minute by minute basis. They see an index drop and believe everything is going down. Maybe they bought a few shares of something and it didn't work for them. Fear can be quite strong, and it takes $3-$4 gain to make up the painfor losing $1. This is where an advisor can show true value. By careful assessment of an investor's risk tolerance, to proper asset allocation, to coaching a client in rough times, we can help a client continue their march towards her goals.
- As for the talking heads and the scare tactics used in some advertisements (we have a radio spot here in Silicon Valley where they actually use the term "Wall Street Casino"), if you look below the surface, they usually have a motivation for what they are saying. They may be selling a newsletter, a 'system', a fund, or some other product or service. Thi sis why I have one of the learning objectives for the CFP(r) investments course I teach is "to become a better financial consumer."
The truth is, many professionals are honest, hard working, and looking to make a difference in peoples' lives. The same is true of financial advisors. However, when the news hits that someone was taken for their life savings, it is easy for the public to paint all advisors with the same brush (halo effect), and that scares people away from doing what is in their best interest. The CFP Board and the FPA do their best to help the profession. One issue is anyone can call them selves a financial advisor.
Our website has a FAQs and Myths section. One thing we make clear is a good advisor will help you find money to save and invest for your goals. However, a financial advisor is not just about investing. A good advisor looks at everything in a client's life. It isn't about money- it's about people.