Should advisors be prospecting investors in their 40s?

New report outlines four investor behavioural classifications and the prospects they present

Should advisors be prospecting investors in their 40s?

New research indicates that connecting with younger investors before they reach the point where they're more likely to hand over entire responsibility to a professional can help a financial advisor create and sustain long-term client relationships.

Cerulli Edge—US Retail Investor Edition, 2Q 2022, created in collaboration with Phoenix Marketing International, identifies four investor behavioral classifications:

  1. Investors who aren't interested in financial advice or use services that are passive, or "set it and forget it" investors.
  2. Investors who are self-directed, autonomous, and self-sufficient, making them uninclined to pay for professional assistance.
  3. Advice seekers who are behaviorally hybrid investors, combining DIY tendencies with a need to seek new information and advice.
  4. Investors that rely extensively on traditional financial advisers and make few decisions on their own are known as advisor-reliant.

Looking at the four different investor types, the new report from Cerulli Associates finds that once people approach their 50s, they become more "advisor-reliant." Furthermore, investors who work with financial advisors are unlikely to switch planners, so it's critical for advisors to establish relationships early.

“On an age basis, the most important trend is the substantial increase in the Advisor-Reliant segment as investors move into their 50s,” the report said. “By age 50, many have had enough experience with their current provider to turn over full control, resulting in a jump in the Advisor-Reliant category to 37% among those ages 50 to 59 and, subsequently, to 52% among those in their 60s.”

Based on the investor profile of people in their 40s, the business suggests concentrating on building relationships with them.

A majority of survey respondents in younger cohorts, 59% in their 30s and 48% in their 40s, fell into the advice seeker category. While these investors are seeking assistance, Cerulli believes they have not yet opted to take a hands-off attitude to their investments.

The self-directed group tends to increase among individuals aged 50 and up, reaching 20% among those in their 70s.

Cerulli director Scott Smith believes investors in their 50s are at a fork in the road.

“These former Advice Seekers can either turn over control [to] their trusted advisors or use the knowledge they’ve captured over the years to take a more active role in the ongoing management of their portfolios long term,” he told ThinkAdvisor.

Cerulli found that self-directed investors have little faith in financial professionals and are open to digital engagement but not robo-advice, among other things.

Investors who rely on advisors, on the other hand, have a conservative risk profile, are minimally or not involved in managing their finances, and are hesitant to embrace digital engagement.

Advisors may identify prospects among passive investors who are open to appropriate partnerships with financial professionals.

Meanwhile, there is a huge opportunity for advisors to create relationships with advice seekers, who overwhelmingly trust financial services firms to look out for their best interests.