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What More Validators Mean for Your Business

Rising Internet use is creating more do-it-yourself investors.

David J. Drucker, 09/24/2009

In its industry report--"Online Tools & Advice: The Intersection of Technology & Self-Service"--released earlier this year, Tiburon Strategic Advisors chronicled the growth of PC and Internet use in the U.S. and the impact this has and will have on the financial advisory industry. The question is this: How is this likely to impact your practice given that online tools and advice are creating a growing base of Validator clients?

For those not familiar with this terminology, Validators are do-it-yourselfers who want an advisor looking over their shoulder to render second opinions and occasional advice. Delegators are more typical as financial planning clients, because they know that they must participate in the process but still expect their advisor to take primary responsibility for their financial success. Self-directed clients do it all themselves and don't seek the assistance of a financial advisor.

The growth in Internet connectivity, in general, is fairly staggering. Tiburon reports that the share of the U.S. population with Internet connectivity will reach 83% by 2013, up from 70% in 2007. The quality of connectivity will improve as well. The number of broadband Internet connections is likely to rise to 95% by 2013, reports Tiburon, up from 79% in 2007 and 90% in 2008.

We talked with Chip Roame, Tiburon's managing principal, about this report and its findings.

Drucker: Chip, in your report, you say, "The line between advisor and consumer technologies will blur as advisor technology gains more client interface options." What type of advisor technology and what type of client interface options are we talking about here?

Roame: Increasingly, consumer oriented technology and financial advisor technology are starting to overlap. Sophisticated consumers who invest on their own can use many of the same products as financial advisors. Morningstar research is a good example, serving both markets. Intuit, Microsoft, and other firms with a leg in the consumer financial world could be big disrupters in financial advisor technology.

Drucker: Your report goes on to say, "The share of high net worth investors that can be considered Validators is likely to reach 60% by 2010, up from 50% in 2007." The question most advisors who read this will have on their minds is... to what extent will the growth come from the ranks of Delegators as opposed to Self Directeds--that is, will their client bases be impacted?

Roame: The increase in Validators will come from both sides. The middle is growing. It will come from the Self-Directed ranks because, as Self Directed consumers come into various "liquidation events," like large pension rollovers after retirement, or proceeds from business sales, they will be more likely to seek some advice. Of course, there's some flow in the other direction too. Financial advisors have stumbled [in this trying economy] and many clients who might traditionally be Delegators will try their luck as Validators, instead.

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