Even Self-Directed Investors Want Advice

As of 2022, 35% of Americans said they work with a financial advisor or wealth management firm while 57% said the opposite. Forgive me for not knowing how 9% of those polled are in the “not sure” camp.

Of course, numbers such as those can be spun in a variety of ways. In the essences of efficiency and positivity, let assume that 65% of Americans aren’t working with a registered investment advisor (RIA). Sounds ominous, but the positive side of the equation is that percentage implies significant room for advisors to bring more new clients into the fold.

However, advisors would do well to not set themselves up for disappointment. That is to say, six or seven of every 10 prospects an advisor meets with will not become clients. Many retail market participants want to remain in the self-directed camp and there’s nothing wrong with that. The interesting part of that story is that many self-directed investors do want to talk with a real, live human being about investing and they’re willing to pay for that advice.

That implies that even self-directed investors represent growth opportunities and new revenue streams for advisors. The related data are quite compelling.

Sort of Self-Directed

Cerruli’s U.S. Retail Investor Products and Platforms 2024 report indicates that 22% of self-directed investors view access to human advice as critical while another 33% consider it somewhat important. So that’s 55% of investors that are going it alone that, on occasion, will want to work with an advisor.

That’s the first part that’s good news for advisors. The second part is the market participants aren’t expecting “freebies.” They’re willing to pay for advice/human interaction.

“Aside from the importance of speaking with a human specialist, most are willing to pay for the privilege—42% say they would be at least somewhat likely to pay to talk to a human specialist,” notes John McKenna, an analyst at Cerulli.

There are other interesting tidbits in the Cerulli report. Notably, self-directed investors with less than $1 million in assets and those under the age of 30 represent the cohorts that are least likely to want to occasionally pay an advisor for advice. Arguably, those are encouraging trends for advisors looking to work with seasoned, wealthier advice-seekers.

Conversion Tips

Obviously, advisors’ intellectual labor isn’t free nor should it be. Still, some self-directed investors might be cost-sensitive. Broadly speaking, advisors charge $200 to $400 per hour for hourly sessions. That’s high enough to make it worth advisors’ time, signal quality and keep unserious tire kickers at bay.

That price range is also effective in terms of not burdening advisors with attempting to convert every self-directed advice seeker into being a full-time client. Of course, there will some self-directed investors that are primed to work with advisors. There are steps to be taken on that front.

“Early awareness, through targeted e-mail and notification campaigns at a given milestone, can boost this awareness. With this increased awareness, clients may become more likely to stay in-house for future financial advice,” concludes McKenna.

Related: Clients Economic Views Highlight the Need for Advisors