Need for a Financial Advisor

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skeptical-1Do I need a financial advisor?

A decade ago, while researching how seniors made their selection of a financial advisor, I warned that times were good for financial advisors because seniors valued personal advice, slowly developed relationships and placed a high value on interpersonal trust. This market, todays 65+ senior market, made the business for the relationship-based financial advisor, especially those working at large firms. Big firms have a patina of trust among the 65+ cohort. Seniors will stick with financial advisors at these firms even in light of periodic and routine stories of these firms acting adverse to their interest and intentionally stealing their money.

However, baby-boomers make financial decisions and choose financial advisors differently. Baby-boomers, are inherently mistrusting of large institutions and the "establishment." If you say you can give them financial advice, they want to know what value you can bring that they cannot create on their own, why do they even need a financial advisor? The most independent baby-boomers have fueled the "no-load" fund industry and every other "do-it-yourself" movement. Therefore, they are far less viable as good candidates for the average financial advisor at a big firm. As this group has moved away from financial advisors at big firms, the baby-boomers not-yet-ready to do it themselves have fueled the growth of the independent advisor industry. Being an independent RIA is the sweet spot for serving baby-boomers.

But serving the next generation gets more challenging for financial advisors.

Indeed, a Cisco study on the use of financial advisors revealed:

The under-50 crowd has been defecting from their financial advisors at a faster rate. (The under-50s represented 29% of respondents, but this demographic accounts for 37% of U.S. assets, the survey says). More than a quarter of the under-50s switched financial advisors in the past two years, compared with only 7% who switched among the baby-boomers and “silvers” (i.e. those over 65). A third of the under-50s plan to leave their financial advisors in the next year, compared with only 8% for the boomers.

This upcoming group wants to know what you can possibly tell them that they cannot learn on the Internet or from their Facebook friends. So if you are a financial sales person who has survived on providing information (the only value that most "financial advisors" deliver), that won't hack it with the under-50 set. To thrive, you will actually need to provide insight (not merely information) which these youngsters cannot find on the Internet.

The minimum threshold for a viable future financial advisor is one who has passed the CFP or ChfC exam. If that minimal level of financial knowledge is not possessed, what need does the investor have for an advisor?

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