One persistent struggle for financial advisors has been to find ways to demonstrate the value that they bring to the table. In fact, research shows that investors undervalue the qualities advisors perceive to be their biggest strengths. Understanding the reasons for this disconnect can help advisors bridge that gap with clients.
“Investors are still stuck in a place in which they see an advisor as a tool to generate returns and beat the markets, but that’s really not what an advisor is anymore – and advisors have to help investors get past that initial idea of what they can offer,” says Samantha Lamas, behavioural researcher at Morningstar Inc. in Chicago, who co-wrote the report, “The Value of Advice: What Investors Think, What Advisors Think, and How Everyone Can Get on the Same Page” for the organization.
The survey from which the report was produced asked 693 investors to rank 15 advisor attributes in order of importance. Then, it asked 161 advisors to rank the same attributes based on what they believed investors would value most. The biggest gap between the two groups was for the idea that advisors can help investors maximize their returns. Investors put it near the top; advisors put it at second-last.
That may be a legacy from the days when industry marketing splashed percentage returns on billboards and the sides of buses, says Scott Evans, a financial advisor at BlueShore Financial in Vancouver.
“We have to be careful not to fuel that market returns talk,” Mr. Evans says. That might mean “letting the client know right away that, as an advisor, isn’t what you consider to be the biggest concern.” Instead, he tells clients that his “biggest concern is making sure you and your family achieve the goals that you want. The returns are something else. They’ll just come naturally if you put a proper portfolio together.”
Sterling Rempel, founder and principal advisor at Future Values Estate & Financial Planning in Calgary, also says it’s important to emphasize goals over returns, but points out that clients often have trouble articulating their financial planning objectives.
“If I ask my teenagers, ‘What are your life goals?’ they’ll say, ‘Oh, I don’t know.’ Clients often have that same lack of vocabulary. They come in and they say, ‘This is not my area of expertise.’ They feel naked, vulnerable and, sometimes, embarrassed,” he says.
To help clients set their goals, Mr. Rempel leads them through several exercises. They identify words that resonate from a list of 25. They divide goals into “now” and “later” columns and check their categorizations against their spouse’s list. They may also take a personality quiz to better understand their relationship with money and what motivates their decision-making. All of that “starts their thinking process,” he says.
Meanwhile, the second-largest gap in the survey was in an area in which advisors themselves believe they add value – helping clients stay in control of their emotions.
“It wasn’t just at the very bottom [for investors] – it was actually so poorly ranked that it was falling off the page,” Ms. Lamas says.
The research team wondered if the phrasing affected the ranking – maybe “helps me stay in control of my emotions” sounded too judgmental, so they did a follow-up study. The more neutral phrasing, “helps people stay in control of their emotions” didn’t fare any better – but “helps me make decisions with a cool head,” “helps me avoid common behavioural mistakes” and “helps protect my portfolio from excessive emotional reactions (panic-selling during downturns)” nudged this attribute from the bottom to somewhere closer to the middle, though still not anywhere near the top.
“Study after study has emphasized the importance of behavioural coaching. Advisors are extremely interested in behavioural coaching and looking at behavioural coaching techniques and tools. Investors, on the other hand, aren’t quite with the program,” Ms. Lamas says.
Mr. Evans says clients often have an easy time believing emotions affect other people’s investing decisions, but a much harder time accepting it affects their own. Beyond trying to keep his clients focused on their goals and their long-term plans, he uses storytelling to show clients they have permission to have feelings about their investments.
“You can tell them about other clients who, in the past, said they were fine with a balanced mix, but then they actually experienced [volatility] and had a hard time,” he says. “Rather than putting the pressure on that individual client, just say ‘There are people out there who sometimes find this difficult, and that’s why I’m here. Never hesitate to reach out to me if you are having those feelings or if you want to review a statement.’”
A third area in which there’s a significant disconnect between advisors and investors is around understanding clients and their unique needs. Advisors expected that to be the attribute that investors value most, but investors themselves bury it in the middle.
Mr. Evans suggests advisors may need to better communicate what meeting these unique needs means. For him, it’s about allocating an investor’s assets accordingly in order to achieve tax efficiency and to invest appropriately for goals with different time horizons. It’s also about seeing a bigger picture that includes a client’s family and making recommendations that accommodate various individuals’ requirements.
For Mr. Rempel, the gaps between what clients value and what advisors think clients value come down to perspective. Advisors rank the things they think they do well highly, including understanding clients and their unique needs, and assume clients will agree with them. Clients, on the other hand, ask “What’s in it for me?” – and that includes maximizing returns.
“Ours is a service profession and the client needs to be paramount,” Mr. Rempel says. “We have all kinds of skills, education and experience to help counsel them, but if clients don’t understand we’re doing it for them and with them, then it’s kind of a non-starter.”
Connecting the dots for clients by showing how what you do benefits them may bring investors’ and advisors’ perceptions of advisor value closer, he says.