When Choosing a Financial Adviser, Trust Trumps All

Research on RIA preferences finds plenty of common ground across ages and genders, but more women prefer a well-known brand.

General Views Of Bank Of New York Mellon Corp.

Pedestrians pass in front of Bank of New York Mellon Corp. branch in New York, U.S., on Wednesday, Aug. 10, 2011. BNY Mellon was accused by Florida and Virginia in a lawsuit of allegedly failing to give the states the best possible prices when making foreign-currency trades for their state pension funds. Photographer: Guy Calaf/Bloomberg

Guy Calaf/Bloomberg

Does gender make a difference in wealth management preferences? Or do the traits that investors prize in their advisers fall along generational lines? In many areas, the sexes — young and old — have more in common than not, according to a study by Chicago-based investor research firm Spectrem Group.

Some results of the study confirm conventional beliefs about what investors look for in their registered investment adviser (RIA). For instance, the highest-rated quality was a perception that the adviser was honest and trustworthy, a preference expressed by more than 90 percent of survey participants. A couple of notable demographic divides: Younger investors were nearly twice as likely as older ones to prefer an adviser who employs social media, and female investors were more likely than men — by 72 percent to 58 percent — to be impressed if an adviser is affiliated with a well-known company.

But the preference of younger investors for advisers conversant with social media requires interpretation. Research by Merrill Lynch Wealth Management, the report of which was released in April, suggests that younger investors are not that much different from their parents. In fact, an RIA’s social media savvy is the least likely deal maker or breaker across age groups. According to Merrill’s “Young High Net Worth Insights Survey,” 10 percent of investors ages 50 to 64 said they wanted their advisers to be active on channels such as Facebook and LinkedIn. Investors age 49 and younger were nearly twice as likely to prefer that advisers use social media, but that still represented fewer than 20 percent of respondents.

Michael Liersch, director of behavioral finance at Merrill, describes the picture as a classic example of perception versus reality. For instance, the April study found that 65 percent of 18-to-35-year-old investors approach investing in a way similar to that of their parents, and 69 percent felt their parents had the right investing approach, contrary to the stereotypical knee-jerk response of children to counter parents’ behavior.

“We saw they’re looking for very similar things that their parents are looking for from advisers,” says Liersch. The researchers also found one major difference. “They’re looking for advisers to start with them at a level that’s personally meaningful for them at their stage in life,” he says. Specifically, he says, advisers need to recognize that many first-time investing millennials need assistance setting financial goals and creating accumulation strategies.

At BNY Mellon Wealth Management, Doris Meister, president of U.S. markets for the New York Tri-State Area, says one key finding of the Spectrem survey resonated with her. “It’s been my experience that clients of any age or gender want someone they can trust,” says Meister. “And while sometimes that may mean a client prefers to work with someone of a particular age or gender, the trust issue always trumps that.”

One unexpected finding of the Merrill survey is that 49 percent of young investors not already working with an adviser said they would be open to working with the same adviser their parents did. Criteria young investors desire in their advisers include values-based investing options (29 percent), help funding their own business (23 percent) and philanthropic management (15 percent).

Although Merrill’s research suggests investor demographics have only a moderate effect on adviser preferences, Spectrem found notable differences on the desirability of referrals and recommendations, expressed by 82 percent of women compared with 63 percent of men. Says Spectrem president George Walper Jr.: “Women prefer a more planning-based relationship versus men, who are much more focused on what the investment is.”

With regard to age, Spectrem found that younger investors generally were more willing than older folks to invest with advisers who relied significantly on e-mail, Skype and other digital communications, as opposed to traditional sit-down meetings. “Younger folks will be willing to take an adviser who is not so much face to face, whereas older folks very much want that,” Walper says.

Walper also emphasizes that advisers should make it a point to talk to investors’ children about their potential future client relationship. “We don’t feel they do that enough,” Walper says. “They actually quite often come to the conclusion that their client does not want them to see their children, when most people say they’d like the children to meet the adviser.”

For her part, Meister says her impressions about the omnipotence of trust are confirmed by surveys conducted for BNY Mellon by an external firm. She says her company breaks down trust into three main adviser traits: the credibility and capabilities of the adviser’s organization; the prospective adviser’s investment acumen; and, finally, emotional intelligence.

“Clients want to feel they are being truly heard and that they are dealing with a rock-solid investment professional,” Meister says, “no matter what that professional’s background may be.” At BNY Mellon, Meister says, pre-employment screening of adviser candidates as well as years-long, posthiring training are devoted to selecting and encouraging these traits. She adds that the company uses a team approach to advising so that clients can benefit from having a diversity of perspectives.

Investors’ preferences change under the influence of not only demographics but also events. Preferences for advisers who come recommended, as well as perhaps affiliated with well-known firms, rose sharply starting five years ago, following the 2008–’09 financial crisis and the Madoff Ponzi-scheme scandal. Since then, investors have become somewhat more open to other brands, but overall they are very different animals than they were, Walper says. “In the fall of 2008,” he says, “all the research we’d done in the previous 15 years became completely irrelevant.”

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