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Advisors, Take Note: Clients Crave More Education About This Specific Investment Strategy

Clients Crave More Education About This Specific Investment Strategy

Many retail investors are interested in index strategies but lack an understanding of how they work, according to a recent survey. In fact, many retail investors say they want more information on index funds. But they don’t recall their financial advisors ever speaking to them about these investment products.

Those were among the findings of FTSE Russell’s inaugural “Retail Investor Survey,” which polled over 1,000 Americans with and without financial advisors in late 2022. Here’s a look at some of the survey’s most interesting revelations related to index strategies, and how they could help your business.

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An Opportunity for Advisors

Clients Crave More Education About This Specific Investment Strategy

FTSE Russell’s inaugural “Retail Investor Survey” found that more than a third of investors who don’t already own index funds simply don’t know how they work. Meanwhile, nearly half of the investors (45%) who have a financial advisor and are aware of index strategies don’t recall their advisor ever talking about them.

This presents an opportunity for financial advisors to educate their clients about a low-cost strategy that just may be off their radar, says Susan Quintin, head of business management, investment and wealth management at the London Stock Exchange Group, the parent company of Russell.

“Our survey reveals that today, investors are choosing index funds for performance and diversification above cost but at the same time acknowledge poor understanding of indexes and index-based strategies,” Quintin said in a statement. “This open invitation to advisors represents a significant and likely overlooked opportunity to engage with clients.”

Not for the Wealthy? Think Again

The survey’s findings also contradict the assumption that wealthy clients are less interested in index strategies. In fact, the survey found that the wealthier the investors, the more likely they are to own index funds.

A higher percentage of high-net-worth investors – those with at least $1 million in investable assets – rely on index strategies than any other wealth tier:

  • 40% of investors with $1 million or more use index strategies.
  • 31% of investors with between $250,000 and $999,000 use index strategies.
  • 24% of investors with between $100,000 and $249,000 use index strategies.
  • 18% of investors with less than $100,000 use index strategies.

This suggests that high-net-worth clients aren’t solely interested in active management and that advisors don’t need to shy away from incorporating or recommending index strategies.

How Index Strategies Can Add Value for Your Clients

Clients Crave More Education About This Specific Investment Strategy

The survey identified one area in particular where index funds can add value: Small-cap stocks.

In fact, 42% of all survey respondents said they currently invest in small-cap equities and half of them do so by purchasing individual stocks. These assets are often more volatile than large-cap stocks and can increase risk levels within a client’s portfolio.

“Showing how advisors are missing a trick, almost half (49%) of survey respondents investing in small caps do so by buying individual stocks. That exposes them to enormous stock-specific risk,” the survey says.

Investing in a small-cap index fund is one way to gain exposure to small-cap companies without the risk associated with holding an individual stock. Of investors with small-cap exposure, however, fewer than three in 10 are investing in small-cap companies via index funds, the survey found.

While that’s a potential problem for retail investors, it’s an opportunity for advisors to educate clients on the benefits of diversification, as well as identify high-quality small-cap index funds for their portfolios.

Bottom Line

Financial advisors may have a blind spot for index strategies. And they should be talking about them more with clients. One survey found that many investors want to learn more about index strategies but have never discussed them with their financial advisors.

Tips for Growing Your Financial Advisory Business

  • Let us be your organic growth partner. SmartAsset AMP (Advisor Marketing Platform) is a holistic marketing service financial advisors can use for client lead generation and automated marketing. Sign up for a free demo to explore how SmartAsset AMP can help you expand your practice’s marketing operation. Get started today.
  • Expand your footprint. SmartAsset’s recent survey shows that many advisors expect to continue meeting with clients remotely following COVID-19. Consider broadening your search and working with investors who are more comfortable with holding virtual meetings or spacing out in-person meetings.

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