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What characteristics do clients value most in their financial advisors? Topping the list are soft skills — ironically, often routinely dismissed by advisors as nice-but-not-necessary. A Massachusetts Institute of Technology AgeLab study in 2015 revealed these findings, and they’ve never been more relevant than today, as John Diehl, senior vice president of strategic marketing, Hartford Funds, which sponsored the study, argues in an interview with ThinkAdvisor.
Analyzed were nearly 500 financial advisor reviews on the popular websites Yelp and Angie’s List.
Given the rise of automated digital advice, “our white paper is more timely than ever for advisors seeking to develop relationships — clients want to talk with someone, and robo-advisors can’t provide the personalized, thoughtful guidance that a human can,” Diehl stresses.
In the interview, he discusses the Top 3 of 7 advisor characteristics that clients commented on in the study, dubbed “In Their Own Words: What Social Media Reviews Reveal About Client Perceptions of Financial Advisor Value.”
Return on investment was least mentioned since that aspect of the FA-client relationship is simply expected of an advisor, Diehl says.
Considering that social media is cluttered with more condemnation than kudos, it’s somewhat surprising that the reviews were “overwhelmingly positive” for all seven advisor characteristics, MIT AgeLab noted. They are, in alphabetical order: Education, Effectiveness, Empathy, Expertise, Personalization, Retail Experience and Trust.
Personalization — tailoring a financial plan specifically to client needs — was discussed positively 185 times. But effectiveness — concerning actual investment returns — only 67 times.
MIT AgeLab concluded: “It is the advisor’s simultaneous orchestration of multiple ‘soft’ and interpersonal skills, together with … traditional ‘hard’ expertise and capacity to deliver return on investment that provides the foundations of client value.”
Diehl, who oversees Hartford’s ongoing relationship with the AgeLab team — whose mission is to translate technologies into practical solutions to improve the lives of people ages 45 and older — educates FAs about emerging opportunities related to retirement-income planning and lifestyle changes, among other tactical strategies. Such guidance is often based on conversion of MIT’s research into teaching materials.
Last summer Hartford, which offers mutual funds, ETFs and 529 plans, held its third annual online video series of advisor practice management lessons. The first episode was “Retirement Under Trump.” Explored were “alternative facts” and investing, along with the top three reasons clients are prone to believing that President Donald Trump’s attention-grabbing tweets impact the market.
ThinkAdvisor recently interviewed Diehl, on the phone from Hartford headquarters in Philadelphia. A certified financial planner who also holds the chartered financial consultant and chartered life underwriter designations, he has been with the firm since 1988. Here are highlights of our conversation:
THINKADVISOR: What are the Top 3 most valued advisor characteristics in MIT AgeLab’s social media study?
JOHN DIEHL: Personalization: “My advisor knows me and understands my situation and how I feel about things.” That helps advisors customize investment recommendations. Empathy: “My advisor always takes time to listen.” Risk tolerance and investment objectives, of course, vary.
What’s the significance of those perceptions?
We live in an era where technology cannot replace a human connection.
And the third top characteristic?
Expertise: “My advisor has a mastery of finance and is up to date on changes in the economy.” Number 4 was retail experience: “How do I feel when I visit my advisor? What’s the meeting place like? Is it easy to access? Is it stressful, or does it alleviate my anxiety?”
What characteristics were most commented on after those four?
Trust: The client feels they can rely on their advisor to make decisions that are in their best interest: He or she is honest, frank, straightforward. That’s something clients expect — if it weren’t there, they wouldn’t have a relationship with the advisor at all. So they tend not to comment on trust as much.
What was next in importance?
Education: “My advisor takes the time to teach me about investing and explain options to help me make better investment decisions.”
And the least commented-on characteristic?
Effectiveness — the advisor achieving investing results. People often didn’t comment on whether or not their advisor made them money because this is an aspect of the relationship that’s expected: It’s what’s they’re paying them for.
Hartford conducted a 2017 survey to see whether Americans changed their financial behavior as a result of the Great Recession ten years ago. You found that 43% of respondents had a wait-and-see approach to investing and 48% of millennials were avoiding the market altogether. How should FAs handle that?
More often than not, people are still suffering with a hangover from 2008-2009. For millennials, avoiding the market can have enormous consequences 10, 20 or 30 years down the road. So getting to the heart of a conversation about why they believe what they believe is critical. People may not even realize what they’ve missed out in the market.
What do such reluctant attitudes signal to advisors?
That it’s time for an urgent conversation to talk about overall diversification and, perhaps, rebalancing the portfolio.
Maybe the hangover you mention stems from being once-burned, twice-shy: Investors want to avoid being hurt again, as they were in the financial crisis.
I very much agree. So the last thing an advisor should do is try to convince the client against their own emotional will that now is the time they should jump into the market. It’s more educating them on what moves markets and why their approach is the way it is. Someone might be overweight equities because they believe the future is so bright that nothing is going to slow it down, while another client may be too conservative.
Seems that FAs really need to live up to the job title, “advisor.”
Very true. They’re almost like a coach. When advisors are compensated with a fee for assets under management, that’s essentially an “advice retainer fee.” It says to the client that if they have questions, maybe some not even directly financially related, they’re going to call their advisor to see what they think.
Why does charging a fee communicate that?
The client’s expectation is that because they’re paying their advisor well, they may know something about a particular issue — and if not, they can connect them with someone who does. This is one of the most valuable resources a financial advisor has.
Because of the lengthy bull market, some experts forecast a big correction. Others say, don’t fret — there’s more bull market to come. How should FAs deal with worried clients?
It’s definitely worth an “emotional conversation,” in which you try to understand how clients feel about the markets. Some are waiting for the other shoe to drop: a pullback. This is an opportunity to educate them on what moves markets — not that they’re necessarily wrong feeling concerned. But oftentimes negative feelings can be fairly superficial.
What’s the way to handle that?
If you ask the client to think about some of the things that move markets, they’re apt to feel more confident about sticking to their asset allocation model in the face of volatility.
Please discuss the investor behavior of expecting future returns to mimic past results, known as “the hot hand fallacy.” For instance, some clients, believing that the long bull market is bound to continue, will go “all in” with their investments, as you’ve pointed out.
We can learn from seeing how people reacted in the past. The recession of 2007 was probably one of the greatest investment opportunities in many years, though certainly it didn’t feel like that at the time. No two market cycles are ever exactly alike, but there may be common threads running through them. Using cycles to educate clients is important. The only rational argument they can throw back at you is, “I believe that it’s different this time.” So at some point, you’re just going to have to agree to disagree.
Please talk about “confirmation bias,” another type of investor behavior. It occurs when people search for information that confirms their beliefs and reject information that’s contrary to that. This phenomenon is dangerous to investors, you’ve written.
It can be. We know from research that we’ve done with MIT AgeLab that people tend to seek out negative information. This sets off human beings’ early warning system and confirms negative feelings. Then it can result in an echo-chamber effect, where we’re telling ourselves that’s why we feel bad and that all the positive things that may be going on around us certainly can’t be true. The best way to lower risk against an uncertain future is to diversify among many different asset classes. If everybody had a crystal ball, we wouldn’t need to diversify.
Is now — the start of a new year — a good time for advisors to meet with clients?
I would probably meet with the clients I’m most concerned with and take advantage of the calendar change to review and think about where to go from here.
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