The power of personalisation in the advisor-client relationship

As people find themselves in an impersonal world of online shopping, remote work and detached Zoom calls; they’re increasingly seeking genuine relationships built on trust and understanding.

This need for a personal connection is the driving force behind almost every customer experience strategy today – and it’s no different for the financial advisory industry.

Advisors who adopt a personalised approach to their clients are able to forge deeper relationships that unlock a wide range of benefits; from more sharply defined goals to increased referrals and smarter investment choices.

To learn more about the importance of personalisation in the advisor-client relationship, Wealth Professional recently sat down with two experts on human behaviour: Ryan Murphy, the Global Head of Behavioral Insights at Morningstar, and Senior Behavioral Researcher Samantha Lamas, also from Morningstar.

Lamas says a personalised relationship with clients has become necessary today. “Clients are getting personalization everywhere else, so they’re expecting it from their advisor as well.

“It’s really a win-win for both advisors and clients,” Lamas says. “Research shows investors are more committed to goals if they're personalised, while the advisor learns enough about the client to avoid misunderstandings down the road.”

Changing times and new expectations

The financial advisory industry is a very different place today than it was even a few years ago.

New technology, markets, and strategies have triggered an explosion of investment choices at the same time investors are coming to advisors with very different needs and preferences.

Aligning all these investment choices with the proliferation of individual preferences isn’t easy – but it’s increasingly necessary. And the key to bringing them together is a personalised approach that ensures the advisors have a very clear understanding of what their clients need.

“It's not as if clients are going to walk into an advisors’ office and say, ‘okay, here are the six ESG funds I want,” Murphy says. “That’s not going to happen very often.”

Clients are often unclear about their preferences and goals. There’s also a potential problem with advisors making assumptions about a client’s preferences based on whether they are young, male or female, rich or poor.

Using stereotypes as a shortcut for understanding a client may lead an advisor to assume, for example, that a Gen Z client wants to prioritise climate change or favour certain social causes. But the data on this isn’t clear.

“The dominant narrative may be that female millennials or Gen X are primarily interested in ESG investments, but that’s not really the case,” Murphy explains. “Sam and I did a study about ESG preferences where we looked for differences across gender and age, and it’s just not supported in the data. You can’t accurately make assumptions about the person who's sitting across from you about their preferences.”

Puncturing stereotypes and pinpointing preferences

Once an advisor commits to understanding a client's motivations while avoiding the tendency to pigeon-hole their beliefs based on their age or gender, there’s now the question of how exactly does this work.

How does an advisor pull back the layers of a client’s preferences around returns, exposure to risk, and any concerns involving ESG?

Murphy refers to a number of research projects in this area that have contributed to the development of step-by-step guides for advisors to use during client interactions.

“There’s little point in asking someone if they want to avoid investments linked to child labour because nobody is going to say they don’t have a problem with child labour.”

Instead, by asking the client to indicate a preference for one portfolio over another you begin to sort their preferences in a more clearly defined hierarchy. Called revealed preferences, it’s an approach that has been shown to be very effective at accurately measuring what a client wants even when they struggle to explain their needs and interests. It’s a process that helps clients better understand and articulate themselves.

The benefits of personalisation

Cultivating a more personalised relationship with a client unleashes a number of benefits for the advisor and client alike. The overriding benefit is one we’ve already touched on and that’s the ability to better define a client’s financial goals.

And once a client’s goals are closely aligned with a client’s investments, it triggers a flurry of other benefits ranging from tax savings to increased referrals and a greater commitment to investing.

“When clients see their advisors understand their goals, and are helping them make progress to their goals, it creates a level of trust in the relationship that delivers a host of other benefits,” Murphy explains.

“It affects how much a client is willing to delegate decision-making to their advisor and, very importantly, it's related to their willingness to give referrals. For advisors trying to grow their business, referrals are one of the most valuable things they can get.”

Another significant benefit of personalisation involves taxes. Consider the example of direct indexing, an investment solution that aligns portfolios with a particular index that can lead to reduced tax liability.

Now, if you ask a new client how important this is to them, they tend to put it in the middle of a list because they can’t immediately see the benefits. It’s an instance of people not knowing what they don't know. So there’s an opportunity here for an advisor to explore the hidden needs of their client through greater personalisation and deliver a surprising benefit.

Personalisation is increasingly defining an advisor’s relationship with their clients, helping to tailor financial advice to the lifestyle and aspirations of individual investors. It’s a bespoke service that deepens relationships and builds trust.

“Gone are the days when advisors simply met with a client to discuss what the markets did in the last two weeks,” Murphy says. “Personalisation is a powerful opportunity for advisors to connect with their clients and build trust that contributes to long and meaningful relationships.”

Suggested read: What aspects of personalization do investors value most? Morningstar’s research team breaks down investors’ perspectives on personalization. Read the report here