Cerulli Associates’ latest reporting offers a deep dive into the differences in investor preferences measured across those who seek out and prefer traditional, in-person advisory relationships, compared with those who prefer Web-based advisory programs.
According to Cerulli, in most cases, those who identify as online enthusiasts opt to take control away from financial advisers because they believe financial firms are not looking out for them. To combat this belief, providers are working to be “more transparent with fees and offer products and services that are a fair trade-off for the client’s and the firm’s interests.”
Cerulli finds investors who identify as “traditionalists” are marginally more trusting that financial services firms look out for their best interests, at 55%, as of 3Q 2017. While the average outlook on trusting financial services is improving over time, Cerulli warns that a lack of trust remains a lingering and potentially debilitating issue for close to half of traditionalist investors.
Interesting to note, while they are less trusting of their advisers and providers, online enthusiasts over time have increased the amount of market risk they are taking, as 7% overall described their investment strategy as “aggressive” in 2015 compared with 12% in 2017. As Cerulli sees it, allowing technology to manage or aid in managing investments as a byproduct may desensitize investors from taking either inappropriate high or low risk.
“A move toward greater acceptance of portfolio risk is an overall positive, especially among younger investors, but providers must ensure that clients understand the implications of these decisions when facing what could be peak equity markets,” Cerulli warns.
Cerulli data shows traditionalist investors’ self-reported risk tolerance has remained “remarkably consistent” during the past two years. These investors generally prefer to outsource portfolio management to their advisers rather than keeping abreast of market developments. As such, they are less likely to have dynamic risk tolerances in the short term.
“Providers should use the opportunity presented by current equity market highs to revisit portfolio allocations with these investor households to make sure that they remain properly allocated with respect to the investor’s goals,” Cerulli suggests. “If certain goals have already been achieved, the situation may warrant a reduction in portfolio risk.”
More information about obtaining this research and other Cerulli data is available here.