Image source: Envestnet Compendum of Industry Trends, April 2015
With more than 300,000 financial advisors in America, why is it so hard to find good advice?
Let’s start with the fact that 60% of those calling themselves advisors aren’t even required to act in their clients’ best interests. And 70% still try to beat the market, even if few are ever consistently successful.
However, if you work with Loring Ward, chances are you are a different kind of advisor, someone who strives to provide the consistent, caring, comprehensive and knowledgeable advice that investors need.
And that makes you a rarity.
As the chart above shows, once you start applying a series of important criteria, the number of qualifying advisors quickly falls away.
Certainly, there are many honorable, well-intentioned advisors who may not meet all these criteria. And this data is not an exact science, just a directional aggregate of meaningful trends.
But, what makes these criteria so important is that, together, they can help significantly increase the ability of advisors to create a better wealth experience for their clients.
Of the 302,000 financial advisors in America, only about 122,000 are Independent Advisors with a fiduciary duty to their clients. These advisors are not required to sell any particular products or services to satisfy a sales goal or company mandate. And as fiduciaries they must put their client first and act at all times in the best interests of each client. This is important because financial advice should never be compromised.
But many independent advisors are still selling commission-based products, which can lead to conflicts of interest, even if unintended. Only about 77,000 independent advisors are primarily Fee-Based or Fee-Only, meaning they receive the majority of their compensation from client fees. They are paid for advice, not for the sale of a financial product (except for some products such as life insurance or long-term care policies) and prosper only as their clients prosper.
Of the 77,000 fee-based/fee-only advisors, about 46,000 are Financial Planners/Wealth Managers — meaning they take a holistic, comprehensive planning approach and address a full range of financial needs beyond investment management, including tax management, retirement income planning, estate planning, etc. Many hold advanced certifications such as the CFP.
Of these advisors, about 16,000 invest primarily in Passive Investment Vehicles — they don’t spend time and client money trying to beat the market (an almost insurmountable challenge as studies, such as those done by SPIVA, consistently suggest). And they don’t recommend expensive, complicated products. However, we know that there are still some drawbacks to many passive products — such as index funds and ETFs — including lack of internal trading flexibility and imprecision.
Only about 5,000 advisors (less than 2% of the total) follow an Asset Class Investing approach, based on almost nine decades of data, analysis and research, insights from behavioral finance and close relationships with leading academics. Many, but not all, of these advisors work with Loring Ward and our partners. Some may even be working on their own or even with competitors, so the 5,000 is a rough approximation. But what makes these advisors special is that they don’t follow fads or relegate their clients’ futures to guesswork and speculation. Instead they embrace smart exposure to the factors of return and the long-term growth potential of markets around the world.
While some advisors struggle to communicate what sets them apart from other advisors, if you are one of these 5,000 advisors, it is pretty clear that you really are different. And your clients are so fortunate to work with you!
Implementing an Asset Class Investing approach cannot guarantee a gain or protect against a loss.