Are Clients Switching Advisors in Droves?

One financial research company thinks so. But after looking at the data, I’m skeptical.

By Jeffrey Briskin

There’s been a lot of press over a March 2024 YCharts investor survey with a headline-making finding that 75% of respondents either switched advisers or were considering doing so.

This survey has been quoted endlessly in various financial publications. However, I have doubts over whether this rate of attrition signals an alarming industry-wide trend or whether it’s more a reflection of the demographics of its survey audience. The more closely I look at the numbers, the more I gravitate toward the latter, especially since research conducted by other firms concludes advisors’ average retention rates are nearly 94%.

Shifting Gears

First of all, the 75% number is misleading, because it includes 12% who switched from a robo-advisor to a human adviser and 3% who were switching from a human adviser to a robo-advisor. Count these out. And of the remaining 60% who said they had changed human advisors or were thinking about it, only 54 percent actually made the switch.

So, only a little more than half of investors turned their dissatisfaction into action. Still, that figure seems very high. You would think that if so many clients were leaving their advisors, we’d be seeing endless clarion calls in advisor publications bemoaning “the attrition tsunami.”

But we aren’t. So that means that advisors are either keeping their true retention figures close to their vests, or that the YCharts research may not be representative of client attrition as a whole.

Under-the-Hood Demographics

I tend to believe the latter, a conclusion that becomes apparent the more closely you look under the hood of the demographics of YCharts’ survey respondents.

 

Let’s start with their age. Eighty-seven percent of survey respondents were under 60 years old and, 57% were under age 45.

Most advisors I know have relatively few younger clients, if only because it’s very difficult for them to market to millennials, Gen Y and Gen Z. And, in my experience, most prospects who seek out advisors tend to do so in their later 50s and early 60s, when they reach a point where they no longer want to manage their own money or they need help with retirement income planning.

Additional Reading: 5 Language Mistakes Advisors Should Avoid

Unanswered Questions

Another questionable demographic skew is wealth. Eighty-six percent of respondents had a net worth of $1,000,000 or less. Again, most investment advisers I know aren’t actively pursuing clients with less than $1,000,000 in investable assets. This isn’t a bias against less-wealthy investors; it’s simply a compensation issue. The AUM-based investment advisory fees they earn on smaller accounts often aren’t worth their time.

Which brings up a critical third question that the research doesn’t address: What percentage of survey respondents work with brokers or investment advisers? And of the 54% who switched advisors, how many moved from a broker to an investment adviser, or vice versa?

This is important to know because these industry channels are very different. Brokers are investment salespeople, paid on commission. Investment advisers are fiduciaries, paid directly by clients and required by law to act in their clients’ best interests at all times.

Call me biased, but I would predict that most dissatisfied clients switched from brokers to investment advisers. If the reverse were true, I would be very surprised. And that would be a very provocative trend.

Unfortunately, YCharts doesn’t provide such a breakdown in their report. However, one interesting finding suggests that more survey respondents may work with brokers rather than investment advisers.

When asked what topics they’d like their advisor to discuss with them, over half chose “investment opportunities” (52%). I loosely translate this to mean product recommendations —the realm of brokers.

Contrast this with the finding that less than a third were interested in portfolio-related insights (29%) and less than a quarter were interested in performance drivers on their portfolio (23%). Given that most clients who hire investment advisers to manage their money do want to know how their portfolio is performing and why, this relatively small number suggests that more respondents are working with brokers.

More tellingly, only 32% of respondents wanted to learn about retirement withdrawal strategies and only 21% were interested in learning about estate planning. These factors that suggest that the domination of younger respondents is skewing the answers.

Investors Crave Contact

Now, the YChart observations that I can agree with are the ones that reveal investors’ desire for their advisors to contact them more frequently. That’s because nearly every survey I’ve ever seen always cites a lack of timely and relevant communications as a key driver of client dissatisfaction.

Seventy-nine percent of respondents wanted frequent or occasional contacts, but only 63% said their advisor contacted them frequently or occasionally.

Eighty-two percent of respondents with over $500,000 in assets proactively contacted their advisor either frequently or occasionally, compared with 59% of those with less than $500,000.

But the crucial finding that would be useful to know is a breakdown of how often advisors contact younger clients versus older clients and those with less than $500,000 versus in assets those with more than $500,000.

Most advisors organize their clients into “tiers” with higher-AUM clients receiving more frequent contact than those with lower AUM. If these findings identified the clients who received the lowest level of contacts were younger, lower-tier clients, this could go a long way toward explaining why these constituencies express a higher level of dissatisfaction with their advisors than their older, wealthier counterparts.

The Takeaways

As interesting as these findings are, none of it really supports YCharts’ overall conclusion of mass attrition among clients. What’s more, the little industry research out there on this topic tends to contradict their findings.

For example, a 2023 Morningstar study found that only 6% of the 3,000 investors it surveyed ever switched advisors. And research conducted in 2020 by McKinsey & Company stated that the client retention rate among the 70,000 investors it surveyed was 94.6%.

So, should advisors ignore the widely touted YCharts research entirely? Not necessarily. It might be useful to advisors who are trying to woo and retain younger and/or less affluent clients — especially those who have the potential to increase their AUM over time. And most advisors could be reminded that improving the frequency and relevancy of client contacts is key to making investors feel valued, especially during turbulent markets.

Jeffrey Briskin is director of marketing at a Boston-area financial planning firm and the principal of Briskin Consulting, which provides content and digital marketing services for asset managers, TAMPs, trust companies, and fintech firms.

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