Why would investors switch
their financial advisor?
In May 2021, we surveyed 1,430 affluent to UHNWI with at least 250,000 USD in investable assets. Of these, 243 stated they use a financial advisor. We also analysed aggregated, anonymized end-client data, stored by banks and wealth managers using Avaloq systems in EMEA.
Methodology
Do you have any questions about this report or the insights we’ve shared? We welcome you to get in touch with one of our experts.
Ada Cirlia
Research & Insights Lead
Ada.Cirlia@avaloq.com
Dr. Shardul Paricharak
Senior Data Scientist
Shardul.Paricharak@avaloq.com
Daniel Studer
Head of Content Marketing Daniel.Studer@avaloq.com
Contact and authors
A look at investors’ relationship with their relationship manager
A look at the fundamentals of investor behaviour across Europe and Asia
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Do you have any questions about this report or the insights we’ve shared? We welcome you to get in touch with one of our experts.
Ada Cirlia
Research & Insights Lead
Ada.Cirlia@avaloq.com
Dr. Shardul Paricharak
Senior Data Scientist
Shardul.Paricharak@avaloq.com
Daniel Studer
Head of Content Marketing Daniel.Studer@avaloq.com
Contact and authors
As part of our larger research approach, we analysed aggregated, anonymized end-client data, stored by banks and wealth managers using Avaloq systems in EMEA, as well as surveyed four respondent groups: Avaloq clients, 500+ retail investors, 1400+ affluent-to-UHNW investors, and future executive leaders via the 2021 IMD MBA programme cohort.
Methodology
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This is the first chapter of our Research & Insights series, where we explore everything from the more foundational — why people invest and what makes for a good financial advisor — to the more topical, such as AI and investors’ willingness to use it, the arrival of BigTech in banking, and the rise of ESG investing.
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Why do people invest?
The first challenge lies in catching a client.
The second lies in keeping them.
Churn – part and parcel of the advisory space, it inspires countless industry solutions, each striving to predict and prevent it better than the last, hoping to help financial advisors avoid the loss of a valued client. But, as with every relationship, there are always two sides to the story…
In this report, we take a closer look at investors’ relationship with their relationship manager. What is it they look for in an advisor and what would make them leave for another? Who are so-called ‘Loyals’ and ‘Switchers’ and how do they differ? And how do investors with financial advisors really feel about the use of artificial intelligence in the advisory process?
Let’s dive in, starting with the basics.
While only 17% of those surveyed across Europe and Asia state that they use a financial advisor, we suspect that many more do have one assigned to them by their wealth manager. This discrepancy suggests that, whether as a result of working with a much-too-passive advisor or due to a simple matter of perception, investors consider themselves to be in the driver’s seat. As we saw in our previous report, the majority of investors surveyed state that they manage their own investments. That said, overall, we may be seeing the hints of a growing need for professional financial advice, with 22% of surveyed investors sharing that they plan to work with an advisor in the future.
When it comes to how many investors have thought of switching their financial advisor, there’s both good news and bad news. The good news is that many investors seem committed to their current advisor. Over half of those surveyed have never considered switching advisors or, if they had, decided against it in the end. The more concerning point is that nearly one-third of those surveyed are currently considering switching their advisor. To learn more about who these so-called Loyals and Switchers are, explore the graph above.
Why would an investor switch
their financial advisor?
Does having a financial advisor change how investors feel about the use of artificial intelligence in advisory?
Speaking of technology, it’s time to put the age-old battle between human advisors and artificial intelligence to rest –
at least, according to our data. We see that an interest in human advisory does not come at the expense of leveraging AI capabilities; actually, when it comes to interest in AI, whether one uses a financial advisor or not is irrelevant. Around half of investors surveyed – from those that currently use a financial advisor to those that don’t even plan to use one in the future – are comfortable having tasks related to their investments be completed with the support of AI.
In effect, investors are welcoming towards a hybrid advisory model: a win-win approach in which advisors benefit from using time-saving AI-based tools, while serving clients even better than before.
Nearly one-third of investors surveyed
are considering switching their financial advisors –
a clear message to the industry that there is always work to be done to meet ever-evolving client needs, particularly those of younger investors.
What can wealth managers do about it?
High fees and a weak portfolio performance are
the reasons over half of investors surveyed would switch their advisor.
It may come as no surprise that those who invest their wealth also watch their wealth. High fees and a weak portfolio performance – or paying too much money to not make enough money – are the reasons over half of investors surveyed would switch their advisor. When we look specifically at those currently thinking of leaving their advisor, this becomes even more stark, with ‘high costs’ jumping to 70% as a reason to switch, vs. 58% for the total sample.
To note, in a world that’s always seeking the latest and greatest in technology, only 30% of those surveyed state that an advisor’s perceived lack of modernization or reluctance to adopt new technology is a deal-breaker. However, this does not mean that harnessing technology is not appreciated; it only serves to highlight that clients care less about the technologies themselves, and more about how their day-to-day will improve as a result of advisors leveraging them.
Clients care about benefits, not technologies. An advisor should not adopt new technologies for the sake of appearing up-to-date, but rather leverage them to meet the other, more pointed client needs – or switching factors – we explored. With the right technological tools at their disposal, advisors can reduce costs through greater scalability, increase transparency, adapt to ever-changing circumstances, and offer greater levels of personalization.
Having a financial advisor and appreciating AI are not mutually exclusive – investors want the best of both worlds: a hybrid advisory model.
Clients want to feel like they’re paying a fair price for a good return and a transparent, trustworthy service, tailored to their needs. Wealth managers can best achieve this by using tools that support hybrid advisory in a scalable way, while also allowing for greater levels of customization and personalization.
Key takeaways
Who are Loyals and Switchers?
The average age of a Loyal is 51 years old – older
than the average Switcher, who is 38 years old.
73% of Switchers have already switched financial advisors in the past, a sign for wealth managers to pay particular attention to such incoming clients, who are determined to find the perfect fit.
Switchers are hungrier for new technologies
than Loyals are, with more demanding modern must-haves in their banking experience, such as cryptocurrencies (51% vs. 17%), robo-advisory (61% vs. 15%), and a state-of-the-art mobile app (61% vs. 30%).
Addressing high costs with enhanced scalability
Fostering clear, agile communication with
Rethinking personalization, considering not only unique client goals and risk profiles, but additional preferences, such as their favoured communication channel or affinity towards ESG.
What role does artificial intelligence play in this?
The fact that an investor has a financial advisor does not stop them from wanting to enjoy the benefits and improved level of service that AI-based tools can provide – strong encouragement for organizations to adopt a hybrid advisory model and find the sweet spot between human and digital advice.
And, finally, which clients present potential relationship-building opportunities for organizations?
Two client events appear to lead to more communication with a relationship manager: when a client executes a large transaction and when a client’s AuM crosses $1 million. Although both are more obvious times for further building client relationships, organizations may uncover additional opportunities through connecting with more stagnant clients, as well as those promising affluent clients under the million-dollar mark.
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conversational banking
How many investors use a financial advisor?
When are relationship managers most
engaged with their clients?
According to Avaloq’s aggregated end-client data, stored from banks and wealth managers using our systems in EMEA, a relationship manager appears to reach out more to clients with high net in- and out-flows. However, relationship managers should not overlook more stagnant clients – especially when 42% of investors surveyed consider ‘infrequent communication’ to be good enough reason to switch advisors. Relationship managers would do well to be just as alert to inaction, viewing it as an opportunity to reconnect with clients and better understand if more support is needed.
The first is when a client executes a large transaction…
There are two client events that usually lead to more communication with a relationship manager.
Our data reveals that, once a client’s AuM crosses the $1 million threshold, contacts with their relationship manager significantly increase. This can likely be explained by a client’s potential reclassification, which brings with it their reassignment to a new relationship manager, who has fewer clients and more time in which to support each one. While such an approach to service evolution is understandable, it’s important that organizations continue to strengthen the support they provide to other clients who reside below this threshold yet are still within the promising affluent cohort – a rising segment that presents strong growth opportunities for wealth managers.
…and the second is when a client becomes a millionaire.
Action taken with bank account
-$
Asset outflows
-$
Asset inflows
No transactions
# of contacts with RM
Client’s AuM
1 Mio.
# of contacts with RM
LOYALS
SWITCHERS
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How many have thought of switching
their financial advisor?
The good news?
Most investors seem committed to their current advisor.
The bad news? Nearly one-third are thinking about switching.
High costs
Weak portfolio
performance
Changing needs
not considered
Infrequent
communication
Lack of
transparency
Poor listening
skills
Reluctant to
adopt new
technologies
currently have
a financial advisor
plan to work with
a financial advisor
in the future
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17%
22%
plan to work with
a financial advisor
in the future
currently have
a financial advisor
60%
50%
40%
30%
20%
10%
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