The Great Recession may be over, but various research reports paint a vivid picture of the lingering effects. One telling example: Investors remain cynical about whether advisors have their best interests at heart. According to SEI's Future Wealth Report, 48% of respondents had no expectation of objectivity from their provider.
Overall, findings from the different surveys indicate three necessary attributes for success as an advisor: an ability to empathize with the client's feelings about their finances; having a specific plan for getting a client back on track from the recession; and the communication skills to convey that plan so clients can easily comprehend it.
UNDERSTAND THEIR EMOTIONS
The failure to really put oneself in the clients' shoes is the advisor's Achilles heel, says Sebastian Dovey, managing partner of the Scorpio Partnership, co-sponsor of the Future Wealth Report. "The financial services industry tends to forget they're dealing with real people and real-life situations," he says. "Wealth management is 90% emotional and only 10% mathematical, not the other way around." If that sounds overly dramatic, consider Dovey's research that shows financial services as the only major industry to deliver a negative client experience—worse than the airlines.
Succeeding in today's environment is all about understanding the client on a new level, says Jim Morris, senior vice president of SEI's private banking segment. SEI's report—done in conjunction with London-based Scorpio and Singapore-based Standard Chartered Private Bank—shows that affluent and high-net-worth individuals want to feel that their advisors have taken the time to really understand their desires and fears, Morris says.
Instead of following the mantra of the day to take the emotions out of the investment process, he says the real lesson for advisors is to embrace the fact that emotions are an inevitable part of the advice process. Morris suggests spending more face time with clients and having conversations that center around their personal goals to demonstrate empathy and build credibility.
HAVE A PLAN
One of the keys to satisfying clients is simply to have a plan. The mass affluent are two- to three-times more likely than the affluent or high-net-worth to delay retirement due to the recession, says Tom Wynn, director of research for the Spectrem Group. And they want to know that their advisors have a plan to get them back on track. Spectrem recently released its 2011 Affluent Market Insights report.
Jim Neuwirth, president of Northstar Research Partners, which recently released a study called Rebuilding Investor Trust, says his research of the mass affluent has produced similar findings. "To a large extent, trust in their financial advisors has rebounded, but investor confidence in reaching their financial goals remains low," he says.
Indeed, 52% of investors were very confident about reaching their financial goals in 2007. That number plunged to 14% in 2009, and after a modest rebound was at 19% last year.
As a result, the conversation advisors need to have with clients must change. The dialogue now must focus on "the fact that you have the answers to help them navigate the financial waters to achieve their financial goals," says Neuwirth.
That includes the ability to provide advice on the client's total portfolio, says Morris. "Even though they may not manage it all, the advisor who can show the client how the total picture is coming together to meet their goals will become the trusted advisor."
With that desire to get back on track, clients are getting more involved in the planning process and are assessing plans more critically. "Clients want to be part of the process and understand the approach the advisor is taking," Neuwirth says. "But they don't want it sugarcoated. They don't want their advisors to simply placate them by telling them what they want to hear. Deep down, clients want to hear the truth and have candid conversations. They want their advisors to tell it like it is."
The penalty for not adding value, says Neuwirth, is that investors-especially the mass affluent-are more willing than ever to take their accounts elsewhere. His study found that 36% of respondents said they are willing to move assets from their current advisor in the coming year.
The final piece to strengthening your trusted-advisor status is in conveying your message to clients. Investors across the board want that information communicated in a more digestible form. "The advisor who is able to talk to their clients in plain and simple language, and make the client understand [it] will meet their objectives and will end up with the lion's share of the assets," says SEI's Morris.
In fact, the lack of clear communication may be the biggest disconnect between the financial services industry and what clients really want. "Providing data is not the same as providing information," says Morris. "Clients often feel overwhelmed by the amount of information being communicated, but it's the advisor's ability to make the client understand what's being communicated that will lead to being viewed as the trusted advisor. Delivering information, instead of data, allows you to earn the right to ask more questions, which in turn leads to a better understanding of the client."
Results from these surveys also indicate that the priorities of the industry may not match up with those of clients. Clients indicate that explaining and validating their investment decisions are a high priority, while the industry ranks those functions as a low priority. Meanwhile, the industry ranks simplifying product offerings and fee structures as high priorities, something clients rank as low to moderate importance. "The industry simply isn't giving enough attention to making the reporting more understandable," says Dovey.
Compliance and regulatory obligations no doubt complicate this disconnect. More rules translate into longer statements and more detailed reports, especially about investment performance and fees. But Morris suggests that firms can provide a customized explanation of how the data relates to the client's personal goals, for example, by identifying a client's goals up front and giving updates in every statement.
These changes should help your practice, and advisors have reason for optimism. Neuwirth reports that 25% of mass-affluent investors who are currently without an advisor plan to seek professional advice within the year. "In the wake of the financial bailouts and the Bernie Madoff scandal, financial services firms have focused their marketing and communications strategy on rebuilding faith and trust in themselves and the industry," he says. "Our research shows that to a large degree that trust has been cautiously restored, and now investors want to know that you have a plan to get them back on track to achieving their goals."
Keith J. Weber founded the Weber Consulting Group, an advisor training, coaching and practice management firm in Fort Collins, Colo.