How Many People Use a Financial Advisor to Invest?

As we move through life, our financial needs shift. Important goals come into focus, our finances become more complex, or we don’t know what step to take next. For many, this requires them to take on assistance from either a financial advisor or robust technology, such as a robo-advisor. Despite the challenges, others handle the task alone, managing their portfolio without help.

In this study, we’ll examine how individuals typically manage their portfolios across various age groups, including investigating why people in these age ranges responded the way they did and the implications surrounding it. Chief among those is looking at when a financial advisor becomes necessary and what people’s tendencies mean for the industry’s future.

How Clients of All Ages Manage Their Portfolio

Building an investment portfolio is crucial at all walks of one’s life, whether they’re young, middle-aged, or approaching retirement. By doing so, one can reach their goals more easily through, if done correctly, sustained growth over time through compound interest. However, many individuals opt for different methods when it comes to managing their investments and overall finances, such as with an advisor or by doing it themselves, i.e., DIY finance.

To investigate how people tend to manage their portfolios, we conducted a survey that collected data on the method by which respondents do so and their age. Below are the options participants had to choose from:

• Financial Advisor. This refers to a human financial advisor, either in-person or remote, that a person may consult with or give discretionary authority to manage their portfolio.
• Robo-Advisor. This is an automated portfolio manager with the authority to trade on one’s behalf. It also monitors and, if necessary, rebalances one’s investments.
• Manage it themselves. This is any scenario in which one handles their portfolio on their own via brokerage accounts, savings accounts, and the like.
• IRA or 401(k). While similar to managing a portfolio oneself, this more specifically applies to people exclusively investing their funds through a tax-advantaged retirement account. Additionally, some arrangements, such as a 401(k) offer professionally managed asset allocations.

It’s important to note, however, that the data in this study is only based on how people said they manage their portfolios. Far more individuals may opt to have a financial advisor for additional reasons, such as retirement or estate planning. Also, the participants in this study are those currently seeking out a financial advisor firm, despite how they currently manage their investments.

The pie chart below illustrates the total results across all data, featuring respondents in their 20s and above:

According to the data above, 47% of respondents choose to self-manage their portfolio, while another 39% opt to keep most of their funds in a 401(k) or IRA. Comparatively, only 9% of respondents already had a financial advisor, whereas 5% worked with a robo-advisor.

The lack of those using a financial advisor to manage their portfolio is noteworthy, especially for older respondents. This is because, up until now (in which they’ve indicated via the survey they’re now seeking a professional), they’ve been content to self-manage.

Portfolio Management Method by Age

As people age, their financial needs can change drastically. Additionally, those with more years under their belt may also carry more experience and wisdom, understanding when it’s time to seek assistance with their investment portfolio. Below are pie charts that display responses from each age group, as well as our assessment of why this may be the case:

Investors Under 30

57% of respondents under 30 opted to manage their portfolio by themselves, whereas 35% chose to invest via an IRA or 401(k). Moreover, only 3% did so through a financial advisor. There may be many reasons for responses above, including:

• Ignorance of needing a financial advisor
• Lack of funds to meet account minimums set by traditional advisor firms
• Insufficient investing knowledge
• Unfamiliarity with hiring or meeting with a financial advisor

For those that did opt for professional management or advice, 35% put their funds in a 401(k) or IRA. Additionally, they elected to receive robo-advice rather than traditional advice.

30s

Respondents in their 30s gravitated towards robo-advice, with 42% saying they go this route. Subsequently, 29% said they self-manage and 26% run it through their IRA or 401(k). This is noteworthy, as it may be emblematic of what Millennials and, eventually, Gen Z-ers are more prone to do. In other words, those in their 30s, having grown up with the internet and experienced the COVID-19 pandemic, may be more receptive to virtual or automated portfolio management.

Another reason for those in their 30s to favor robo-advisors is that they may not have sufficient funds to meet account minimums for financial advisors. Automated portfolio managers tend to have much lower initial investment requirements to get started. Additionally, they’re easy to use and require little to no interaction with a human, which may be more attractive for beginners.

40s

While 45% of 40-year-olds reported managing their own portfolio, 5% of people in this age range use a financial advisor. This is up from 3% of those in their 30s, indicating that the older people are, the more receptive they may be to hiring a financial advisor. Moreover, far fewer people in this age group utilize a robo-advisor, which may be indicative of more complex finances or a lack of knowledge about them.

50s

Of the respondents in their 50s, 11% say they already work with a financial advisor. This continues the increase from younger individuals, who lean more toward robo-advice. The cause for this could be due to:

• More complex finances. As one ages, they’ve more likely built up a substantial portfolio, provided they’ve been saving and investing over time.
• Important goals looming ahead. Typically, those in their 50s have crucial financial milestones nearing that may require assistance from an advisor, such as retirement, paying for their children’s college, or even estate planning.
• More familiarity with in-person interaction. At this time, those in their 50s have spent a big portion of their life without access to robust internet services. This may cause them to lean toward human financial advisors rather than an automated portfolio manager.

Another vital trend that continues from both respondents in their 40s and 50s is that many indicate that their portfolio is managed via a 401(k) or IRA. As people age, they may think more about retirement and, thus, allocate more to their tax-advantaged savings accounts.

It’s also possible for individuals in this age bracket to have much of their investment portfolio tied up in their tax-advantaged savings accounts. Over the years, it’s likely that they’ve been contributing to a 401(k), 403(b), or an IRA. And, if they haven’t changed jobs, they have no reason to move the funds yet.

60 and Above

Respondents in their 60s feature the most sizeable group of individuals who use a financial advisor to manage their portfolio, with 21% saying they do. Just 2%, on the other hand, use a robo-advisor to handle their investments. When one compares this against the responses from those in their 20s, 30s, and 40s, it seems to be the opposite.

Those in their 60s are typically at or nearing retirement age. Additionally, they may have a higher net worth than younger Americans. According to a study by Empower, people in their 60s had an average net worth of approximately $1.63 million in 2023. The more one has, the more necessary an advisor becomes.

It’s also worth noting that, contextually, those in their 60s have spent less of their life with technology, such as robo-advisor tools, than younger generations. This may influence their likelihood of selecting a traditional financial advisor to manage their portfolio.

When Does Financial Advice Become Necessary?

Based on the data above, most investors of all ages don’t utilize an advisor to manage their portfolio. And, for people in their 20s and 30s, the tendency is to choose robo-advisor tools instead if they do want help. So, if many individuals are content to handle their portfolio alone, when does a financial advisor become necessary?

Anthony DeLuca, CFP, CDFA, and Senior Financial Advisor at Delta Advisory Group, says, “When it comes to the conversation of the worth of a financial advisor, it’s generally wise to look at the cold hard facts. Vanguard released a study showing that individuals who work with a financial advisor earn about 3% more per year than working alone.” He adds that, for “the average day trader,” the numbers become “far bleaker,” with “95%” losing “all of their money” and “about 5%” maintaining their principal.

Rather than try their hand at day trading, Deluca recommends that “the moment someone wishes to begin investing” or when they begin “accumulating wealth,” they should “turn to an advisor.” In other words, if you’re unsure of how to successfully invest or if your net worth begins increasing, it’s wise to seek help from a professional to ensure you don’t make mistakes or lose money.

It’s also important to consider the difference between investment management and financial planning. While the respondents in this survey may not use an advisor for the former, they may use it for the latter. Financial planning becomes a necessity for anyone looking to reach important goals, such as retirement or paying for their children’s education.

What the Behavior of Young Clients Means for the Future of Financial Advice

Another important takeaway from the data is the prevalence of young clients using robo-advisors for investment management. Those in this age group are more comfortable, almost symbiotically, with technology than older generations. Therefore, this makes them more receptive to using software rather than a person to manage their investments.

Based on the above, is it possible that the younger generations will veer away from traditional financial advisors as they age? It’s possible that as comfortability with technology increases, market share for in-person or human advisors will decrease (see our study on people’s openness to remote financial advice for additional data on this). However, it’s not a certainty, especially given the value real professionals offer.

DeLuca, an experienced financial advisor, says the flaw in robo-advice is that it “lacks human-to-human interaction” and, thus, can result in a “misalignment of goals.” For instance, he told us that he “had a friend who used a robo-advisor in 2022,” which then placed them “in a growth portfolio” because of “their age.” This caused them to lose “money” rather than reach their goal, which was to “purchase a house in 9 months.”

It’s also important, however, that individuals in their 20s and 30s may not have as much to invest as older generations, disqualifying them from enrolling with many investment management firms. And, as one gets older, they require additional services, such as retirement or estate planning, which robo-advisors aren’t as adept at.

For now, robo-advisors have a place in the market, catering especially to beginners with fewer assets or less experience. However, as one’s needs change and become more complex, human financial advisors retain an edge.

Methodology

The data used in this article is based on an anonymized survey conducted by Datalign Advisory, LLC, a partner of ComparisonAdviser. Respondents are prospective clients searching for financial advisor firms in their area. In the survey, participants were asked questions regarding their age and how they manage their portfolios.