Investors Have Too Much Information, Not Enough Knowledge: Morningstar

What You Need to Know

A quarter of respondents in a new Morningstar survey said they feel very or extremely uncomfortable making investment decisions.
This presents opportunities for financial advisors, but the survey also found that advisors have a PR problem.
As such, advisors must clearly differentiate themselves from other sources of financial information, Morningstar says.

Investors today have access to data and research that used to be available only to financial professionals, and are bombarded with advice from both traditional sources and social media. Yet they are uncertain about what information can be trusted, what is valuable and what is simply noise.

On top of that, they can choose from up to 750,000 different investment options, and even more if they’re accredited.

In a new survey, Morningstar asked about 2,000 investors across the U.S. how they felt about this plethora of information. Ninety-five percent of survey participants are involved in their household’s investment decisions, and those who are actively investing have been doing so for an average of 15 years.

Twenty-six percent of respondents said they feel very or extremely uncomfortable making investment decisions. The main reason? Sixty-five percent feel they do not have enough knowledge to make the right decisions.

Among respondents who are uncomfortable making investment decisions, 42% reported that they have the largest part of their investable assets in cash or liquid accounts even though they could benefit from investing.

Opportunities for Advisors

Financial advisors have clear opportunities to help sort through the noise. But the Morningstar survey found that advisors have a public relations problem.

When respondents were asked to rate how valuable different information sources are to them, they assigned similar value to financial advisors as to trading and investment platforms and to financial news sites. However, advisors’ value increases significantly in investors’ eyes once a relationship begins.

Fifty-three percent of clients in an advisory relationship tend to rely on providers for help with asset allocation, 51% in addressing changes in economic conditions, 31% with taxes and 28% for help with life events. Morningstar said this suggests that although advisors may have a perception problem with investors, that improves after the relationship begins when they help clients in concrete ways.

To get to that point, Morningstar said, advisors should have an accessible summary of the services they offer, how they can help different clients based on their current and desired state, and how they are compensated for their services.