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It’s a logical assumption that the primary reason prospects become clients is because they’re searching for improved investment returns. Likewise, it also makes sense that the biggest culprit in terms of clients ending relationships with advisors is what they perceive to be sub-par portfolio performance.
The realities are different. Indeed, returns matter, but not to the extent that many advisors believe. Plus, various research and studies suggest performance-driven factors and returns are surprisingly low on the list of reasons why clients fire advisors. Some even go so far as to note that 10% or less of client-initiated separations are prompted by performance or lack thereof.
At first glance, it may not appear obvious, but this is good news for advisors and the “why” is easy to explain. Put simply, if clients are entering into unions with advisors focused on issues beyond portfolio performance, that implies they see value in advisors beyond investment management. That’s a clear plus at a time when many advisors are pitching the virtues of holistic practices.
Of course, returns are an important part of the equation, but some fresh research indicates a lot that boils down to how much portfolio performance is emphasized.
Think About How Much Returns Are Discussed
It’s also reasonable to assume that the better markets are performing, the more likely advisors are to boast about performance to clients. That’s just human nature and these days, it’s probably fair to say advisors aren’t crowing about returns.
Advisors might want to consider the findings in a recent Morningstar study. The research firm analyzed an array of advisor/client relationship studies, finding returns appeared as a primary value-add for clients in just a quarter of those studies. That implies the context in which portfolio performance is discussed is meaningful.
“In particular, people may latch onto returns when they’re explicitly reminded of them. This can be circumvented by getting people to slow down and articulate what they really want (that is, their values or goals),” notes Danielle Labotka.
Translation: clients value other advisor attributes, including communication skills, consistency, empathy and delivery of reliable, solid advice.
“Our research found that people consistently valued advisors who gave advice that reflected their unique needs and provided support that helped them reach their goals,” adds Labotka. “Therefore, the first step to helping clients avoid a fixation on returns is bringing clients’ values and goals to the forefront of the advising relationship.”
A Good Time to Remember the Big Picture
This piece was penned on Thursday, April 3 – a day on which the S&P 500 slid nearly 5% after the White House unleashed trade tariffs. It was also the worst intraday showing for stocks since the dark, early days of the coronavirus pandemic.
In other words, this is a good time to connect with jittery clients and, believe it or not, discuss returns, but not in the context of “this is what’s good/bad.” Rather, remind them to see the big picture and reiterate that their portfolios are built to handle temporary market shocks. That’s a performance-related conversation, but it reminds clients that they hired you for reasons beyond strong showings during bull markets.
“You can also remind them their plan was built to account for such shocks, or go even further and show them how changing course can change the trajectory of achieving their goals. Because your clients care more about their goals than a specific number, reminding them what they are working toward can serve as a powerful motivator when the noise of returns is loud,” concludes Labotka.