How investors select advisors Advised investor insights
Methodology Investable asset levels of surveyed investors Types of firms advising surveyed investors 83% Mass affluent ($100K < $1M) 16% High-net-worth ($1M < $5M) 1% Ultra-high-net-worth ($5M+) 29% Independent broker-dealers 24% Wirehouses 16% Other 12% Regional broker-dealers 8% Registered investment advisors 6% Banks 5% Insurance companies Source: Vanguard. 2
Agenda Themes in our research findings Investor profiles The importance of referrals 3
Your job is important and complex Big and competing client goals Technical knowledge A wild card complicates your task... * Source: Cerulli Associates. The Cerulli Report Advisor Metrics 2015. Page 74. 4
The wild card in your practice 5
Advised investor profiles Low Self-perceived investment knowledge High Talk to me Do it for me I want it all Show me performance Partner with me I want my advisor to share knowledge. My advisor can do it all for me. For me, fit, credentials, and performance all matter. Bottom line, I want performance. I m looking for a financial collaborator. Uninvolved with advisor investment decisions Advisor decision based on gut feeling Higher incidence of inherited money Novice investor Uninvolved with advisor investment decisions Select advisor based on one referral Received referrals from a professional Advisor must be sensitive to risk tolerance Want to build relationship with advisor Manage portion of their own investments Advisor must show years of experience and prior performance Advisor decision based on facts Manage portion of their own investments Organized approach to financial matters Self-made money Source: Vanguard. 6
Investor traits Level of selfperceived investment knowledge Looking for... Primary advisor selection criteria Household financial decision-maker(s) Talk to me Do it for me I want it all Show me performance Low Low Fairly high High High... advisor to share knowledge Credentials, personality... advisor to handle all investments Credentials, referral... the complete advisory package Credentials, personality Partner with me... performance... a financial partner Credentials Joint Mix of primary and joint Primary Credentials, personality Approach to investing Disorganized Organized Preferred local, face-to-face advisor Loyalty to current advisor Medium Low High Medium-high Medium Medium Low High Medium 7
Investors by the numbers Talk to me (18%*) Do it for me (25%*) I want it all (15%*) Show me performance (21%*) Partner with me (21%*) Investable assets Mass affluent ($100 < $1M) High-net-worth ($1M < $5M) Ultra-high-net-worth ($5M+) 90% 92% 77% 75% 78% 9% 8% 22% 23% 21% 0% 0% 1% 2% 1% Relationship type Advisor-assisted 58% 80% 76% 84% Advisor-dependent 42% 20% 24% 16% Source: Vanguard. * Percentage of investors. Note: Figures may not sum to 100% due to rounding. 8
Investors by the numbers, continued Talk to me (18%*) Do it for me (25%*) I want it all (15%*) Show me performance (21%*) Partner with me (21%*) Gender Male 62% 70% 75% 79% Female 38% 30% 25% 21% Age Mean age 61 years 58 years 63 years 62 years 60 years Working age (<65 years) Retirement age (65+ years) 55% 64% 44% 50% 58% 45% 36% 56% 50% 42% Source: Vanguard. * Percentage of investors. Note: Figures may not sum to 100% due to rounding. 9
Talk to me Want/need hand holding Want to learn/advisor to share knowledge Advisor credentials are critical, but personality, willingness to educate and easy to talk to are also vital 1% strongly agree with the statement I am a knowledgeable investor 80% report they are highly satisfied with their advisor 78% say they are very likely to recommend their advisor Source: Vanguard. 10
Talk to me investors: How to tailor your approach Educate those who show interest in growing their financial knowledge Focus on rapport and relationship-building Be patient He made me feel like I could pick up the phone and call him and he d answer my question, even though sometimes maybe they may have been foolish. He answered my questions and made me feel comfortable. That was important to me having chosen him. High-net-worth female, Northeast 11
Do it for me The least satisfied with their advisors Don t feel knowledgeable or organized in regards to finances Don t require a lot of attention because they want their advisor to handle everything 32% describe their level of investment knowledge as low 59% express uncertainty about how much they know 45% work at full-time jobs significantly more than any other segment Source: Vanguard. 12
Do it for me investors: How to tailor your approach Demonstrate your credentials, knowledge, and performance Set expectations clearly Be succinct in your interactions Before [I found an advisor], I felt like I was gasping for air.... I just felt that choking feeling, like this is too much for me. I don t know what I m doing.... This is just one more thing I don t want to deal with. Mass affluent male, Midwest 13
I want it all Looking for good fit, credentials, and solid performance Be a good listener and easy to talk to these investors want to build a relationship with their you Most likely to provide referrals 93% report they are highly satisfied with their advisor 90% say they are very likely to recommend their advisor 81% Prefer local advisor with face-to-face meetings the highest of any investor profile Source: Vanguard. 14
I want it all investors: How to tailor your approach Listen well and ask them good questions Set clear communication goals and be available through multiple channels Ask for feedback Share market insights regularly I interviewed [prospective advisors]. A lot of them didn t realize they were having a job interview. So they were eliminated fairly quickly. I asked a lot of questions, trying to understand their main interest whether it was me or them. And how they thought they would help me. Then I would hold them to that.... Ultra-high-net-worth male, West 15
Show me performance Results and performance are key They are much more concerned about their portfolio than your personality or building a relationship with you They are willing to pay higher fees for better performance 25% have $1M+ in assets the most affluent clients 88% report they are highly satisfied with their advisor 86% say they are very likely to recommend their advisor Source: Vanguard. 16
Show me performance investors: How to tailor your approach Stress facts Focus on your credentials, knowledge, and performance Seek to understand their finances in total Leverage for referrals Let s take into account how much money I want to be able to enjoy life to be able to spend on things that I enjoy. Go to restaurants on the weekend, buy things for my kids. And kind of strike the balance between Where do we want to be down the road as a family? and How do we still enjoy life now? High-net-worth Female, Northeast 17
Partner with me Want to be involved in the financial decisions/see financial advisor as a partner Personality is critical Confident, self-made, and organized 99% describe themselves as knowledgeable about investments and the financial markets 80% say they are very likely to recommend their advisor 54% manage a portion of own assets more than any other client profile Source: Vanguard. 18
Partner with me investors: How to tailor your approach Balance rapport-building with demonstrating your credentials Explain your ideas and approach simply and clearly Seek to understand their finances in total... She seemed very bright, too very nimble mind. So it felt as if she was really interested in people, individual people. And she was masterful about remembering every detail, names and details like that. And I think that gives the impression that she knows you. High-net-worth female, Northeast He listened. People don t do that enough. But he listened to what I had to say and let me express and go through everything. I thought we were on the same wavelength. It was very positive. High-net-worth male, Northeast 19
Different firms attract different investors Talk to me Do it for me I want it all Show me performance Partner with me Banks 17% 32% 12% 18% 20% Independent broker-dealers Regional broker-dealers 18 22 16 22 22 16 25 13 19 26 Wirehouses 15 28 13 20 23 Registered investment advisors Insurance companies 19 17 16 25 22 35 27 15 16 7 Other 21 18 20 23 20 Source: Vanguard. 20
Profile your clients Profile your clients Adjust your style accordingly Advisory teams: Consider aligning advisors and investors based on shared preferences and interests Consider: Where do your top clients fall today? Do you prefer to work with certain types of investors? Should you alter how you serve any clients or even part ways with some of them in recognition of their service requirements? For more help: Vanguard s Simplified approach to identifying types of investors worksheet 21
The critical role of referrals 22
Why referrals are key How investors find advisors 56% Referral 19% Local office 7% Advisor-sponsored event 7% Personal relationship with advisor 10% Other Source: Vanguard. Numbers do not sum to 100 due to rounding. For a breakdown of how investors choose advisors by investor type, see the following page. 23
Referrals pay An investor who comes to an advisor via a referral is less likely to switch (12% versus 17% of investors who find their advisors other ways) and more likely to recommend to others (81% versus 74%) 81% are likely to recommend 56% found current advisor via referral 78% selected advisor referred (86% for UHNW) 88% are unlikely to switch 24
How investors find advisors On average, the percentage of investors who choose on the basis of either a referral or the proximity of the advisor s office 75 % Among investors who obtain referrals, the percentage who received only one or two referrals 25
Where investors turn for advisor referrals Top five sources Another professional, such as an accountant or lawyer Another financial advisor/person in a financial institution Immediate family member Colleague Friend 0% 10% 20% 30% 40% Talk to me Do it for me I want it all Show me performance Partner with me Source: Vanguard. 26
Sources of investor confidence in referrals Trust/ Respected individual Financial knowledge/ Success Similar life stage/ Financial goals 27
The beauty of referrals Regardless of referral source, an investor who is referred to you is likely to select you and to be a loyal client 28
Take action to generate referrals o Delight your clients o Consider building a memorable niche o Get to know centers of influence (be patient) o Ask o Clearly articulate your value proposition o For more help, see our worksheet, Drive referrals to enhance your practice. 29
Actively manage your center-of-influence (COI) relationships Actions taken by advisors in the last year 95% 85% 83% 32% 45% 54% 42% 20% 9% 9% Had a COI visit their office Got social with COIs Sent a small gift to a COI Sent 10 or more referrals to COIs Know their COIs "very well" personally Received five or more COI referrals Received zero COI referrals Source: Matt Oechsli, Research Cracks the CPA Referral Code, Wealth Management.com, May 4, 2016. http://wealthmanagement.com/businessplanning/research-cracks-cpa-referral-code. Reproduced by permission. 30
What s next in Advised investor insights research How advisors build trust with their clients Three components of trust: Functional Emotional Ethical Behavioral coaching How advisors encourage their clients to act in support of their goals and to avoid counterproductive activity 31
Important information All investing is subject to risk, including possible loss of principal. 2016 The Vanguard Group, Inc. All rights reserved. PID667828_DOLU10/4/2018 Investment Products: Not FDIC Insured No Bank Guarantee May Lose Value 32