Study shows how educational curation, and going outside investment advice can make a big difference
In the financial services business, the know-your-client process is a ubiquitous and necessary exercise that informs the guidance and service provided by any good advisor. But according to new research, clients need advice that goes deeper than portfolio-management explainers and market commentaries.
A new study from the Investments and Wealth Institute (IWI) in partnership with Absolute Engagement, which surveyed a panel of over 1,000 advised clients across North America, found that clients can be divided based on a self-confidence index into three segments. Those with the highest levels of self-confidence based on four criteria – their level of financial security, the extent to which they felt in control of reaching their financial goals, how confident they are in their own ability to reach their goals, and having a clear plan in place to achieve them – were found to express the highest levels of satisfaction with their advisors.
“Looking at the data, we found that there were gaps between how important clients thought those four things were and how they were actually feeling,” said Julie Littlechild, CEO of Absolute Engagement. “The difference in index scores between moderate and high-confidence respondents wasn’t very big, but we found it had an outsized impact on advisor satisfaction.”
Working backwards from those differences in data, Littlechild explained, revealed that clients’ self-confidence was tied to advisors’ actions. More specifically, they felt confident because of the information that advisors arm them with as they identify their financial priorities and build financial plans around those.
Of course, human beings aren’t so simple; referring to other work she has done with advisors, Littlechild acknowledged that certain clients are predisposed to having low confidence, irrespective of factors like their level of wealth or how markets are doing. But the data from the research, she added, shows that an advisor who understands their client’s level of self-confidence can effectively help overcome that aspect of “nature” with a healthy helping of “nurture” through the right forms of guidance and support.
So what does the “right” guidance and support look like? Unfortunately, there’s no easy answer. One good place to start, for instance, is having a process to regularly review clients’ objectives and revise their plans accordingly. But considering how one client can be comfortable with an annual check-in schedule and another would want it to happen monthly, it’s clear that effective advice is dependent on a financial-service professional’s willingness to proactively listen and dig deep.
“Even if they know what the drivers of self-confidence are, I think advisors need to find out exactly where their clients are on confidence and what their specific expectations are,” Littlechild said. “Otherwise, you’re trying to build a client experience around industry averages, which is never a good idea.”
Another takeaway from the research is that client expectations are fluid to a degree. She noted that certain pieces of the advice conversation – such as questions of performance, risk, and value, among other things – take on added importance during times of uncertainty. The implication, then, is that advisor communications should walk the line between being consistent through time and being adaptive to shifts in clients’ feelings and need for support.
One example, according to Littlechild, would be an advisor who isn’t worried about clients not calling as markets went haywire in recent months. The advisor may consider it validation of their reminders for clients to expect occasional volatility – solid advice during the best of times, but probably as useful as a security blanket given the current global situation.
“I get the importance of advising clients to weather the storm, but when you’re in the middle of a global pandemic, they still need to hear from you,” she said. “I fly a lot, and I know that turbulence is just a reality we can’t avoid altogether. But I still want the pilot to come on and things are going to be ok.”
Addressing clients’ changing needs may also require advisors to go outside the realm of traditional financial planning. The study found that non-financial issues, particularly questions on health and wellness, have become a dominant concern among clients. So if the goal is to add significant value and demonstrate leadership, advisors must be prepared to find ways to support clients’ needs, even if it’s outside their own specific expertise.
“I think there are a few guiding principles around communication,” Littlechild said. “Messages have to be personalized, and the right information must be sent to the right clients based on their concerns. Advisors should also look for opportunities to send more aspirational content and messages.”
In the U.S., a number of advisory firms are already marching toward this hyper-personalized approach, which demands more active listening and a broader offering of educational topics. It doesn’t have to be difficult or complicated; in her own consulting work, Littlechild explains that it could be as simple as asking clients what they’re interested in learning about or where they’re struggling, and sending some curated articles on that topic.
“The overall message here is that we’ve got to be intentional and show efforts to understand where our clients are and support them in the way they need,” she said. “It’s less about the advice that advisors need to share, and more about encouraging clients to communicate where they’re challenged.”
