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On the surface, it would appear implicit that advisors are dispensers of advice. After all, “advisor” is derived from “advice” so the logical assumption is that clients engage advisors for advice.
Indeed, that is a big part of what advisors do on a day-to-day basis and that’s not going to change because spans myriad topics beyond portfolio construction, including estate planning, saving for college, long-term care, tax strategies and much more. Those are among the reasons prospects become clients and those factors highlight the importance of delivering much more than impressive portfolio returns.
Actually, various research and studies suggest performance-driven factors and returns are surprisingly low on the list of reasons why clients fire advisors. Some studies indicate it’s roughly one in 10 clients that fire advisors did so solely due to portfolio performance.
And that speaks to something advisors may be overlooking: clients don’t just want advice. They want advice that’s consistent and dependable.
Quality of Advice Matters
Recent research by Morningstar confirms the importance of reliability in the advice department. Think of it in baseball terms: advisors should aim to be Tony Gwynn, not Mark McGwire. Hit singles and doubles, instead of relying solely investment-specific advice to carry the day.
“Though on the surface, this theme may seem to speak to an advisor’s expertise (having the relevant skills and knowledge to complete financial tasks), it was more layered than that,” notes Morningstar’s Samantha Lamas. “Rather, expertise was simply the foundation—and more aspects of the theme were more multifaceted.”
The notion of dependable advice is subject and varies from client-to-client, but the good news for advisors is that consistent advice is often perceived by the client as tailored wisdom. In other words, consistency can beget customization.
“Broadly speaking, the theme of ‘advice I can rely on’ reflected an advisor’s ability to provide personalized recommendations, address a client’s unique financial needs, and alleviate a client’s financial concerns and worries,” adds Lamas. “These activities do require extensive financial knowledge, but they also require a deep understanding of the client, both their financial needs and how they emotionally manage financial matters.”
Two Points of Emphasis
When it comes to delivering consistent advice, advisors can focus on two areas – neither of which is a stretch. First, is planning. Obviously, desirable financial outcomes are born out of proper planning, but advisors can take it a step further.
Obviously, plans, be they estate plans, budgets or portfolio construction, are devised on behalf of clients so let them in on the process. They’re likely to value the unexpected participation while potentially perceiving it as another avenue of tailoring. Next up, be communicative about fee structures and your fiduciary responsibilities to clients.
“The truth is that many clients don’t understand how their advisor gets paid, and that can be an issue if left unexplained,” concludes Lamas. “Clients need to understand the relationship between the advice they are getting and how you get paid to see how your advice is something they can rely on for their needs.”