The Biggest Roadblock Keeping Wealthy Investors From Hiring an Advisor

The boom in direct retail accounts at brokerages during the pandemic tapered off by 2022 as new investors began to seek more hands-off ways to steward their assets. According to a study released Monday by Cerulli Associates, this resulted in investors becoming more reliant on financial advisors who could navigate volatile markets.

The study predicts that the demand for trusted advisors and providers will continue to increase in 2024, given lingering economic concerns.

Cerulli noted that its research has repeatedly shown that affluent investors develop deep trust in advisors with whom they work closely. Before that, however, unadvised investors may be apprehensive about hiring an advisor because of cost concerns.

Show and Tell

Forty-six percent of prospective affluent clients in the study said that cost transparency was the most difficult aspect of working with an advisor, and 28% said that advisors were too expensive. Another 34% said they were uncertain whether advisors recommend the best products.

Advisors charge for their services in a variety of ways, whether asset-based fees or commission-based ones. According to Cerulli, this sometimes makes it hard for prospective clients to fully understand how much they will pay for advice, how they will do so and what type of advice they will receive.

John McKenna, research analyst at Cerulli, said that advisors have to ensure that their fee schedule is easy to understand and to detail exactly which services clients are paying for and how they will pay. At the same time, advisors must also understand how new clients want to engage with their finances and with the advisory team.

"As more investors transition from being solo traders to seeking formal financial advice, they will want an advisor who understands their needs," McKenna said in a statement. "That begins with the advisor being open not only about how advice delivery is carried out, but also the methods through which it is delivered."

The study found that investors' concerns tend to abate once they enter the advice relationship. At that point, only 11% of those who work closely with an advisor said costs were not transparent, and 12% said they were too high.

Cerulli said it is incumbent on advisors to discuss their fee table with prospective clients, provide a good estimate of how much they can expect to pay and how they will make that payment, and show them the types of services they will receive.

"Regardless of how one communicates with a prospective client, it must be transparent from the first encounter on," McKenna said. "This will remain critical for growing one's book of business and building long-term, loyal relationships."