Advisors naively believe that only 17% of their clients hold a direct account when in fact 74% do, according to a new report from Boston-based research firm Cerulli Associates.
The finding is consistent across all channels, including banks, wirehouses and independent advisory firms, which had direct account ownership rates of 75%, 74% and 78%, respectively.
In the bank channel, almost one in four investors (24%) said they held the majority of their assets in direct accounts, even though they considered their bank to be their primary financial provider. An equal percentage said they maintained direct accounts to save and invest for a specific goal, such as retirement. Others reasons included wanting to keep assets easily accessible in case of emergencies (15%) and separate of their primary financial advisor relationship (8%). Still others (8%) used direct accounts as “play money” to test their own investing ideas.
While these outside accounts present opportunities for advisors to win the remainder of the investors’ assets over time, Cerulli cautions against trying to do so. “High-pressure sales tactics will likely not result in investors consolidating these assets,” Cerulli writes in the report, “Retail Investor Advice Relationships 2012: Meeting Investor Need Post-Crisis.”
Instead, advisors should encourage their clients to disclose secondary accounts to improve asset allocation when engaging in a comprehensive financial plan. “Providers would be well served by highlighting the importance of including all an investor’s resources when crafting a comprehensive financial plan. They should also inquire about the potential of investors holding separate assets and what strategies the investor may be using within them in order to ensure there is minimal conflict with the assets held by the provider,” Cerulli writes.