Concerns about scam artists driving public to self-directed accounts
The series of scandals following the financial meltdown clearly have left an impression on the investing public.
In a study set to be released Nov. 8, mid- and late-career investors said getting ripped off by their advisers is their biggest fear. Indeed, nearly six out of 10 of polled investors 28 to 64 said getting scammed is their biggest fear, according to Hearts & Wallets' Quantitative Panel 2010.
Likewise, almost half of investors near or in retirement said they too are afraid of getting ripped off by their financial professionals. “The industry needs to be asking itself if this is something they feel good about,” said Laura Varas, a principal with Hearts and Wallets.
As a result of this mistrust, more investors are defining themselves as “self-directed,” according to the survey of 4,000 households. Fifty-four percent of affluent investors 28 to 64 identified themselves as self-directed investors. That's up from 29% in 2008.
Similarly, 38% of pre- and post-retirees said they are self-directed, up from 36% in 2008.
While this movement should be a red flag for advisers, it doesn't mean that investors are fleeing full-service firms in favor of doing everything on their own through discount brokers, Ms. Varas said. “This is more about investors' wanting to understand what is going on and ultimately making their own investment decisions,” she said. “But many of them are still looking to advisers.”
In fact, the study found that seven out of 10 investors surveyed use a financial professional. One-third of investors that use full-service advisory firms consider themselves, not their advisers, their primary source of investment advice.
In qualitative interviews, Ms. Varas said that investors trust advisers more if they feel understood by them and if their advisers are able to explain things clearly. “Advisers shouldn't feel threatened by this,” Ms. Varas said, “but they should be aware of it.”
