Questioning the Value of Professional Advice

The shifting fortunes of American investors are detailed in a recent Hearts & Wallets report, “Portrait of U.S. Household Wealth: Market Sizing, Segmentation and Product Ownership by Age, Assets, Lifestage and Behavioral Segment.” The analysis taps into multiple government data sources, proprietary quantitative data from 4,500 U.S. households, and ongoing qualitative research.

The analysis shows total U.S. household investable assets at $30.2 trillion at year-end 2010 with retirement assets at $10.7 trillion and taxable assets at $19.5 trillion. Taxable assets climbed steadily since 2004, from $12.9 to $19.5 trillion. Retirement assets recovered from a stumble down to $8.1 trillion in the crash of 2008, rising to slightly surpass their 2007 peak of $10.5 trillion.

Of the approximately 120 million households analyzed in the report, about 30 million have at least $100,000 in investable assets.  This leaves 90 million households that have not reached this mark, an increase from 82 million before the 2008 market turmoil.

“The 2008 downturn hit households very unevenly, and that may prove true again with continued market turbulence,” said Laura Varas, Hearts & Wallets principal. “In intuitive terms, about 1 in 8 of the households now ‘in’ the $100,000 to $250,000 segment moved down from a higher investable asset segment.”

Hearts & Wallets argues that investors with decreasing assets are changing their opinions about the value of professional financial advice as a result.

“For some households, the drop in asset segment was because of personal investment choices, and a segment of those are now seeking the help of a professional financial adviser, a behavioral segment identified by Hearts & Wallets as ‘Upshifters,’” said Varas. “Other households suffered the decline while having professional financial advice, and some, ‘Downshifters,’ now question the value of that advice and whether they might make better choices themselves.”

Affluent asset segments have become smaller; the $2 to $5 million and the $250,000 to $500,000 segments were particularly hard hit. The $250,000 to $500,000 asset segment now totals 6.4 million households, down about 25% from 8 million in 2009. This segment is concentrated in the 45 to 54 and 55 to 64 age groups as in 2009. This group controls $2.5 trillion in assets, down from $2.9 trillion with the decline occurring in retirement accounts and managed investments.

The $1 to $2 million and $100,000 to $250,000 segments grew, as they received households that shifted down into these asset segments.

“The shifting of assets has been dramatic, illustrating the challenge in offering asset-based pricing services to investors,” said Chris Brown, a Hearts & Wallets principal. “How much money someone has at a point in time is not a particularly insightful descriptor of their interests or concerns. The financial services industry needs to understand this when developing investor servicing models.”

The report also provides retirement income market size data, which retirement assets are the biggest and fastest growing, and the drawdown rates for households 65 and older by asset segment.