Have you ever stopped to consider how much financial advice actually costs? If you have been investing in mutual funds for a long time, it would not have ever occurred to you because in the past financial advice was traditionally paid for through commissions.
That has changed. Now financial advisers have to earn their keep by charging the investor for advice. Naturally, like any drastic change, this has been met with reluctance. But are investors averse to paying for advice?
Last year, the CFA Institute & Edelman Investor Trust Study polled investors across the US, UK, Hong Kong, Canada and Australia. The study was based on the feedback received by 1,604 retail and 500 institutional investors.
When asked what was most important when making a decision to hire an investment manager, investors ranked “trusted to act in my best interest” as most important (35%). Another 17% stated that commitment to ethical conduct mattered most to them. If you combine these two factors of trust and ethics, you will see that it is the most important thing to more than half of the respondents. The ability to achieve high returns was most important to just 17%, while, surprisingly, the least rated was the amount/structure of fees (7%).
This year, Morningstar UK conducted a survey to understand what it is that investors expect when they look to an adviser. The survey found that for more than half the respondents, the most important factor when choosing an adviser was trust. Cost came third on the list followed by past investment returns.
When asked why they were not willing to pay for professional financial advice, the reasons were wanting to be the one in control of their own finances (29%) with the second most popular answer being that consumers think they can do a better job on their own (22%). Only 5% said they could not afford it.
These surveys throw some important light on the investor-adviser relationship. While all along many have been of the opinion that investors are reluctant to pay for advice, the truth is that the bulk of investors are not averse to it. They are actually open to paying for advice, if they can trust the person who is responsible for that advice. After all, it is daunting to trust your money and financial future with a stranger.
What about you? If you are an investor, are you open to paying for advice? If you are a financial adviser, what problems do you face on charging for financial advice? Do help us gauge the investor-adviser relationship by doing this short survey. It will only take a minute of your time and requires no personal information. The responses will be presented and discussed at the Morningstar Investment Conference.
