Age does matter. How a client perceives an advisor depends on how old he or she is, a study has found. A recent Final Mile study, commissioned by Foundation of Independent Financial Advisors (FIFA), shows that young investors, under 35 years, are more likely to view advisors as transaction enablers in mutual funds.
The study showed that 25% of the total under-35 investors surveyed believe that the primary role of their advisors is to facilitate transactions. On the other hand, investors above 35 believe that the role of advisors is to guide them in dealing with all their personal finance needs.
This shows that there is a strong relationship between an investor’s age and his/her perception of an advisor’s role.
The report has attributed this to the inability of some investors to distinguish between advisors and distributors. They believe that they are part of the same service. “From the investor’s point of view, advice is implicit in the investor-advisor/distributor relationship. This relationship is primarily based on affective trust, and is not based on cognitive trust. Affective trust pertains to the fact that when investors are disappointed, they are disappointed in the product or asset class and not disappointed with their advisor/distributor,” the report said.
“Cognitive trust is based on the confidence you feel in another person’s accomplishments, skills, and reliability and evolves through business interactions. Cognitive trust is rooted in the ‘head’, whereas affective trust comes from the heart. Affective trust arises from feelings of emotional closeness, empathy and friendship,” the report added.
Another reason behind this belief among young investors is the focus on short-term returns and investing without identifying financial goals. “Dissonance between investments and goals could be the result of the investor’s lack of goal clarity and definition and exclusive focus on short-term returns that makes it difficult for investors to understand how an advisor fits in the investment picture.”
To build a long-term relationship with younger clients, the study said that distributors should focus on communicating goal-based financial planning as the foundation for long-term engagement with their clients rather than focusing on the image of being a ‘transaction-facilitator’ or ‘wealth-maximiser’.
How investors view advisors
