Looking for a new advisor?

Are Canadian investors looking to change their advisors? A full 67% say they are not. But that leaves a third of Canadian investors who say they would consider finding a new financial advisor. Let’s consider the Canadians who are thinking of changing advisors.  Our research results are a product of the ongoing Financial Comfort Zone study, a cooperative research project conducted by Credo and TC Media.

The relationship between a financial advisor and the typical Canadian investor tends to become more profound over-time. As the age of an investor increases, so too do positive relationship elements with the advisor.  What Neil Sedaka said is true, “breaking up is hard to do!”  And the longer the relationship, the more complicated and less desirable the break up.  This is as true for the relationship an advisor has with a Canadian investor as it is for a marriage.

About half of Canadian investors who have a financial advisor in their preliminary accumulation years (the 35-44 year-old age group) are considering looking for a new financial advisor. The younger the investor, the stronger the likelihood that a change is desired. This could be due to a number of factors.  However, as investors age and their wealth grows, so does their relationship with their advisor.  It gradually becomes cemented, in a sense.

One might believe that it’s simply harder for people to switch advisors as they age and satisfaction with an advisor becomes less relevant. However, we have found that there is a strong positive relationship between investor satisfaction with their advisors and Canadian investors’ age. In fact, nearly every metric we measure about the investor-advisor relationship grows stronger with age:

  • Likelihood to recommend
  • Comfort discussing financial matters
  • Satisfaction with communications
  • Trust

In the Financial Comfort Zone Study, we assess Canadians’ financial literacy; their understanding of basic financial matters such as investment accounts, credit, interest, and other matters related to functioning in Canadian society.  We rank investors based on their understanding of financial matters and, when we cross-tabulate their ranking with individuals who are considering finding a new advisor, we find an important relationship.  The lower the understanding of financial matters, the higher the probability that a Canadian investor is looking for a new advisor.

Advisors benefit greatly from their clients having a better understanding of personal financial matters.  This makes sense.  Markets have been tremendously volatile over the last decade.  This volatility, combined with a lack of understanding of financial matters among investors makes markets seem mystical and senseless.  When advisors cannot deliver insight that addresses this volatility, they become redundant for investors who believe that the advisor’s principal role centers around investment management.

Credo is a firm believer that advisors need to position themselves outside the spotlight of basic investment selection.  Advisors create strong, trust-based bonds when they guide their clients continually through the development of financial knowledge and literacy.  Investors who score in the bottom, 4th quartile with respect to financial literacy are more than twice as likely to indicate that they are hunting for a new advisor than investors who are able to demonstrate high levels of financial literacy.

Looking for a new advisor vs. Financial literacy
Looking for a new advisor vs. Financial literacy

Advisors create value when they focus on educating their clients; helping them truly understand financial matters rather than positioning themselves within the mug’s game of investment selection.