Investors Rely on Independent Advisors More Than Ever Before, Report Shows

Investors are relying increasingly on independent advisors for help in managing their finances, a report from Cerulli Associates showed, with the trend especially pronounced among younger investors.

Compared to two years ago, investors are relying more on advisors and less on seeking advice or managing investments on their own. As of the second quarter, 43% of investors surveyed by Cerulli identified themselves as “advisor-reliant,” up from 36% who said the same in 2021. Meanwhile, the share who identified as “advice-seekers” and “self-directed” investors fell, while “passive investors” held steady at 27%.

The report’s authors define advisor-reliant investors as those who, despite having investment management tools at their disposal, “see value in financial planning and prefer to have a human advisor who can manage their portfolios for them.”

Younger Investors More Likely to Seek Independent Advisors

Investors were more likely to seek independent registered investment advisors (RIA) to help them with their finances.

Advisor-reliant investors made up two-thirds, or 66% of the client base of independent RIAs, compared to 63% of clients at traditional wirehouses—a category that includes Wall Street giants like Morgan Stanley (MS), UBS (UBS), Wells Fargo (WFC) and Bank of America’s (BAC) Merrill Lynch. At 49%, private banks had among the lowest exposure to advisor-reliant investors.

Younger investors, particularly those in their 30s and 40s, “tend to put more focus on the quality of service they receive,” in contrast to older investors, for whom reputation and personal referrals are more important factors in picking a financial advisor.

“This generation is used to being able to obtain answers to any question with just a few taps on their smartphone, so the idea of being on hold for minutes—let alone hours—can be off-putting, particularly when dealing with something as important as their finances,” the report’s authors said.

Banking Turmoil May Have Accelerated Shift—And Not Just For Clients

The trend of investors gravitating toward independent advisors may have accelerated this year amid the turmoil in the banking sector, which witnessed the collapse of three high-profile regional lenders, including First Republic Bank which had a sizable wealth management business.

The crisis had clients worried about whether their assets were safe, and most banks sent out communications reassuring them. However, the Cerulli report points out that clients trust their advisors, but not so much the firms that advisors work for. So, the onus of soothing clients’ nerves falls on the advisor.

The resulting shock from the banking turmoil “left a trust gap between clients and firms” and prompted advisors—particularly those at financially distressed firms—to seek greater autonomy for their practices by going independent.

“Although the wirehouse channel dominates industry assets and average advisor productivity, the flexibility and higher payout percentages of independence is appealing to many advisors,” Andrew Blake, Associate Director at Cerulli, said.