Retail investors trust big advisory firms less than they did four years ago and are questioning the value of the advice they receive, according to a retail investor report from Cerulli Associates, based on a survey it conducted with retail investors.

The report divides the $22.4 trillion in retail owned assets into three groups: advisor intermediated, with $13.9 trillion, direct to investor, with $4.2 trillion and other intermediated channels with $4.3 trillion.

On Wall Street, Financial Planning and Bank Investment Consultant were given a sneak peek at the survey, and this week we'll be bringing you the key findings.

Today: How are investors reacting to ongoing market volatility?

Investors are less aggressive than their advisors' risk profile assumes them to be, according to Cerulli. In fact, "many investors simply have no desire to endure ongoing market volatility," the report said.

Many said they would be willing to trade returns for stability in gyrating markets. High net worth investors are the most willing to try new investment ideas. Although they are keen to keep growing their wealth, they identify their first priority as capital preservation.

 "That played into the results of the last ten years. Advisors assumed their clients were more aggressive than they were, and no one talked about downside risk" said Scott Smith, analyst at Cerulli. "It also plays off the theme of investors not being satisfied with the solutions available," he added.

But the solutions that have arisen over the last decade are not ideal. Smith was especially critical of the trend of advisors acting as portfolio managers. "We have in our universe of 300,000 advisors a third to half of them thinking they can outsmart the CFAs supporting global tactical allocation at every asset management firm, as well as every institutional manager," he said. "Asset gathering, money management and relationship management, quite frankly, are very different."

Nevertheless, the trend to entrust advisors with both the management of the client relationship and the portfolio arose as the logical outgrowth of two changes in the way wirehouses have run their business over the last decade. First, they encouraged advisors to use fee-based solutions to guarantee recurring revenue. Second, they pushed advisors to have discretion over a client's account to boost efficiency.

Now, with quite a few years of return data, Smith says that advisors using a tactical approach to portfolio management are not making better decisions than the average investor. In fact, they tend to make the same classic mistakes. They do not generally have a framework for making tactical trades. Without that, "tactical investing is just another name for market timing," the report noted. Many advisors are chasing hot returns, and overreacting to bad news. "Buying high and selling low is not just an investor problem, it's an advisor problem," Smith said.

Nonetheless, the problem has arisen as investors, panicked after the market crisis of 2008, demanded that their advisors do something - anything. Even though the returns for advisor-directed programs have underperformed programs directed by a centralized team since 2008, most clients don't realize that. "The client sees that as the advisor is doing more, so it increased their perceived value," Smith said.

He stressed that advisors should set a well researched strategy, not simply humor panicky clients who want to see some action - any action.

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