Podcast: Defining the Individual Investor

An Examination of the SIFMA-Cerulli Individual Investor Research Project

The SIFMA commissioned the Individual Investors’ Use of Financial Advisors research project conducted by Cerulli Associates. The research explores the relationship between individual investors defined as households with $100,000 to $1,000,000 of investable assets and their financial advisors.

Listen to Ken Bentsen, SIFMA president and CEO in our latest podcast, leading a discussion with SIFMA’s Board-level Private Client/Wealth Management Subcommittee Chair Ken Cella who leads the Edward Jones Client Strategies Group, and Scott Smith, Director of Advice Relationships at Cerulli Associates to review the research project and its findings.

This podcast not only reviews key data on the relationship between individual investors and their financial advisors, but explores how the relationship is evolving given the greater reliance on financial advisors and technology.

Key Research Highlights Include:

Individual Investors* currently hold $6.5 trillion with securities firms, with an average relationship size of $135,000

  • There are over 33 million households between $100,000 and $1,000,000 in investable assets, representing 26% of the U.S. population
  • These investors control nearly 23% of investable assets in the U.S., over $11 trillion
  • 78% report using a professional financial advisor today

Individual Investors are very satisfied with their advisor relationships

  • 74% report that they would recommend their advisor, 77% believe their advisor is worth the cost
  • Just 1% report being dissatisfied with their advisor
  • Trustworthiness, dedicated relationships, personalized advice drive this satisfaction

Individual Investors name retirement planning as the primary service they receive from their advisor

  • Already retired Individual Investors rely on personal investments for nearly two-thirds of their retirement income
  • Retirement income planning and retirement planning are the most common services offered by advisors serving Individual Investors

As digital solutions proliferate, personalized financial planning services will become an important complement in individual financial relationships

  • 38% of Individual Investors believe they will need more advice in the future
  • Advisors serving this segment intend to broaden their offering of financial planning services
  • Lack of human interaction is cited as the primary obstacle to digital relationships
  • Digital engagement allows for scaling of basic services, and more time for personal interaction

**For this project Individual Investors are defined as households with $100,000 to $1 million of investable assets. 

Transcript

Edited for clarity

Ken Bentsen: Thanks for joining us for this episode in SIFMA’s podcast series. I’m Ken Bentsen, President and CEO of SIFMA. Today, we’re here to talk about the release of the SIFMA-Cerulli Individual Investor research project, which explored the relationship between an individual investor and their financial advisor. According to the research project, nearly 80% of individual investors reported using and relying heavily on a professional financial advisor for financial advice, especially as it relates to planning for retirement. 

To discuss the key findings more indepth, I am pleased to be joined by our Private Client/Wealth Management Board Subcommittee Chair Ken Cella who leads the Edward Jones Client Strategies Group, and Scott Smith, Director of Advice Relationships at Cerulli Associates 

Ken Bentsen: Financial Advisors play an essential role in helping Americans reach their long-term financial goals. While our report includes data on all retail investor sectors, the primary focus is on individual investors defined as households with $100,000 to $1,000,000 of investable assets. Scott, as we look to understand the research’s key findings can you talk more about these individual investors and their assets?

Scott Smith: Absolutely, thank you Ken. I think it is important to point out that Individual Investors currently hold $6.5 trillion with securities firms, with an average relationship size of $135,000.

There are over 33 million households with between $100,000 and $1,000,000 in investable assets, representing 26% of the U.S. population.

And, 78% of these individual investors report using a financial advisor today.

Ken Bentsen: That is a significant number of individual investors relying on financial advisors today. Ken, I know we have discussed the role advisors play in the past and it is a core focus of yours. Can you expand on that theme, the importance of the client – financial advisor relationship?

Ken Cella: Thanks Ken – Yes, the relationship between the investor and their financial advisor is core to the service and advice an FA can provide. It is a cornerstone of the industry and something we are always striving to strengthen with new tools.

In fact, Cerulli’s research found individual investors were very satisfied with their advisor relationships, and 74% report they would recommend their advisor, and 77% believe their advisor is worth the cost.

This trust and satisfaction allows FAs to help clients identify, prioritize and pursue financial goals as well as navigate challenging times and ensure they feel understood.

Ken Bentsen: Ken, that is a perfect segway to another question I have for you. What do individual investors rely on most from financial advisors? And, do you see investors’ needs changing in the future?

Ken Cella: Well, as you said in the beginning Ken, financial advisors play an essential role in helping Americans reach their long-term financial goals.

The data confirmed this, showing that individual investors named retirement planning as the primary service they receive from their financial advisor, followed by protecting their current level of wealth.

Individual investors also reported receiving approximately half of their retirement income from investments, and those already retired rely on such investments for nearly two-thirds of their income.

On your second question, we do see some investors needs changing in terms of how they wish to interact with their financial advisors in a more connected world. However, most – approximately two-thirds – of individual investors still prefer human interactions with their FAs as opposed to using the latest technology tools for financial advice and investments.

Ken BentsenWhile as you say, most investors prefer human interactions when it comes to financial advice, we have seen digital solutions proliferate. Scott – what data did Cerulli find on investor interactions with or opinions of digital services?

Scott Smith: To start with – the demand for financial advice seems to be continuously trending upward – Highlighted by the data point that 38% of Individual Investors already believe they will need more advice in the future.

The key point we were able to derive from the data the way we’ll be able to serve this demand is using digital or automated personalized financial planning services as a complement to – not a replacement for – human financial relationships.

As Ken Cella just mentioned investors prefer human interaction, but a digital experience of some kind is an expectation of the financial advisor relationship. People like the ability to look up their current balances at any time – but also want to have the option to talk through their goals with someone they trust.

A good example of this would be that our research found that respondents expected financial planning services to individual investors to increase as technology expands access and expands the scale at which we can deliver more personalized services

Ken BentsenThank you Scott. SIFMA’s members have long focused on the critical role of the financial advisor and the importance of FAs helping all investors reach their financial goals. The SIFMA-Cerulli Individual Investor research project not only provides data to inform the industry on what is working well, but also how to continue to enhance the retail client experience. Thank you all for joining me today to explore this research and how the investor and financial advisor relationship can continue to evolve. I would remind our listeners to go to www.sifma.org to see all that we are doing in exploring the role financial advisors play and advocating for effective and efficient capital markets. 

Kenneth E. Bentsen, Jr. is president and CEO of SIFMA, the voice of the nation’s securities industry. He is also chief executive officer of the Global Financial Markets Association (GFMA). Ken Cella leads the Edward Jones Client Strategies Group and is SIFMA’s Board-level Private Client/Wealth Management Subcommittee Chair. Scott Smith is Director of Advice Relationships for Cerulli Associates.