From same-sex marriage to speed limits, the 50 states hardly agree on one thing, and advisors should take those borders into account when evaluating which investment services they provide, according to a study by Boston-based research firm Aite Group.
The report, Investing and Trading in the United States: Red, Purple and Blue, lays out the ways investment preferences, confidence in the economy and wealth vary among geographic and political regions. Red states with a republican majority, for example, were more likely to invest in company-sponsored plans than Democratic blue states. Red states had 28% of their assets allocated to 401(k) investments compared to an average of 11.5% for purple (swing) states and blue states.
"There is a notion that a financial product whether its mutual funds or gold investments or whatever that may be would have more or less equal demand given a large enough area," Javier Paz, a senior analyst at Aite Group and the lead analyst on this year's survey, said. "But something that we're finding out through this report is that the ratio of investors looking for different products more likely follows a different kind of distribution, one that is more like pockets of individual preference for financial products that vary state by state."
Red states also reported abnormally low levels of wealth compared to blue and purple states. Red states comprised 11% of the nation's cumulative total, which was below the 22% survey weight of the red states group. While the survey did not speculate on the differences in investment preference and wealth levels, it did conclude that it could provide "possibly higher margins for wealth management firms with a stake in institutional, managed funds."
Meanwhile, swing state voters said that in comparison to red and blue states, they lacked confidence in U.S. equities markets. A quarter of purple state respondents reported being "not confident" compared to 16% and 17% of blue states and red states, respectively.
In addition to a political break-down, Aite Group also looked at wealth trends on a state-by-state basis. Swing states, appropriately, had the most variation within their group in terms of their investment preferences. Voters in the Great Lakes region took a long-term approach to investing while swing state voters in Florida were more likely to place bets on REITs and commodities futures. Those in North Carolina were self-reported to be very comfortable with speculative positions.
Similarly, states that were around large financial centers, such as New York, New Jersey, Pennsylvania and Illinois, are "major hubs for the most active traders." North Carolina, Florida and California (L.A. in particular) also showed signs of high activity, according to the report. Meanwhile states such as Indiana, Michigan, Wisconsin, Ohio and Tennessee all showed an investor/active trader ratio in the five-to-eight range, which indicates "a stronger preference for investing rather than active trading," the survey said.
According to Paz, advisors should take this into account when reviewing the sales of certain financial products. Lower interest in commodities futures in Indiana compared to Florida, for example, may not mean that the broker is doing a poor job of selling the product.
"You shouldn't beat yourself up too much if that's the case. You should alert your superiors that they should lower their expectations sometimes in terms of what traction you should expect in this particular region for this particular product," Paz said.
In its summary, Aite Group acknowledged a couple principal demographic trends may have factored into results. Taking into account adult-age respondents with $25,000 in investable assets, Asians constituted 12% of blue state respondents but four percent in red and purple states. Blue states also had a lower percentage of retirees, 10%, compared to 17% in red and purple states.
To that end, the survey stated that Asian respondents "topped the list" of the largest wealthy minorities in blue and purple states and that, "this group (and not just Hispanic investors) needs to gain more prominence within wealth management marketing budgets - specifically, securing dedicated marketing campaigns and the development of financial products catering to their needs."
The survey, which originally took place in December of 2011, was updated in August of 2012 to include 644 investors with over $10,000 in investable assets outside of company-sponsored retirement accounts.
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