Today’s investors are exposed to more information than any previous generation, with access to data and research that would have been available only to financial professionals in the past, but that does not necessarily lead to improved knowledge or understanding, a new study finds.
To get a better understanding of today’s “evolving investors” and their behaviors and attitudes, Morningstar surveyed over 2,000 people across the United States who were recruited from a nationwide panel that provides strong representation across gender, geography, age, employment, ethnicity, household income and investable assets.
It found that, despite this growing surplus of available investment information, investors suffer from anxiety and decision paralysis. In fact, 26% of respondents say they are uncomfortable making investment decisions and 65% of them feel they don’t have enough knowledge to make the right decisions (this was cited as the top reason for this discomfort).
In addition, those uncomfortable with making investment decisions had the largest chunk of their investable assets (42%) in cash and liquid accounts, despite being in a position where investing would be beneficial, the survey found.
According to the corresponding Voice of the Investor study, these are not rookie investors—95% of the study participants are involved in their household’s investment decisions and those who are actively investing have been doing so for an average of 15 years.
Relationships Matter
For financial advisors, this provides an opportunity to serve a group that needs guidance and actionable insights, Morningstar suggests. Clients who use financial advisors tend to rely on them for tasks such as:
- reallocating assets (53%);
- addressing changes in economic conditions (51%);
- tax season (31%); and
- life events (28%).
“This suggests that investors depend on advisors during transitions, to help them take action and make decisions that will help them achieve their goals,” the report notes.
However, when the firm asked respondents to rate how valuable different information sources were to them, financial advisors were perceived as having similar value to trading and investment platforms as well as financial news sites. That said, the numbers also show that advisors’ perceived value increases significantly once an investor begins a relationship with one.
“This suggests that while financial advisors may have a perception problem among investors, once a relationship begins, they experience advisors’ value in concrete ways,” Morningstar notes, adding that the “challenge is in the initial engagement between investor and potential advisor, which is fueling the inertia for the investor to continue to do nothing.”
To remedy this, the study emphasizes that advisors must have an accessible summary of:
- the services they offer;
- how they can help different clients based on their current and desired state; and
- how they are compensated for their services (commission, fee-based or subscription-based).
Survey participants also indicated that the top three factors they considered when thinking about their best investment strategy were:
- maximizing returns and minimizing losses on all investments (34%);
- finding the best financial advisor to meet unique investing needs (27%); and
- security of assets with the lowest amount of risk (23%).
“Taken together, these top three factors suggest that risk management is critical to investors, and perhaps for many, personalization equates to finding a financial advisor who’s able to help them identify their risk tolerance and act accordingly,” the study observes.
Notably, “optimize investment decisions to societal and environmental goals that my values align with” received the least attention at 7%. Perhaps not surprisingly, those who ranked this factor as more important tended to be Gen Z and Millennials. “As these generations age, it will be important for advisors to keep tabs on whether these priorities persist in order to stay relevant in the strategies and services they offer,” the study further suggests.
Overall, respondents skewed towards traditional investments over emerging asset classes in their investing attitudes. This appears to be driven at least somewhat by a perceived lack of access, as nearly 6 in 10 (59%) said they do not believe they can easily invest in emerging asset classes. In addition, more than 7 in 10 (75%) said they do not have a good understanding of emerging asset classes.
The findings are based on 2,003 total responses collected through an online survey. Respondents qualified for the survey by being 18 or older, living in the U.S., and being not currently employed as a financial advisor.
