Agreeing on the value of financial advice may seem easy given the wealth of information available on the internet. Yet the findings of a recent Morningstar survey reveal ample opportunities for advisors and investors to get on the same page.
In the survey, investors ranked a list of fifteen attributes according to what they valued most, and advisors ranked the list according to what they thought investors valued most. Surprisingly, only one value was ranked by both investors and advisors among the top three values: the ability of advisors to help clients reach financial goals.
|What They Value Most||What They Think Investors Value Most|
|1. Helps me reach my financial goals||1. Understands me and my unique needs|
|2. Has the relevant skills and knowledge||2. Helps me reach my financial goals|
|3. Communicates and explains financial concepts well||3. Keeps my interests in focus with unbiased advice|
Beyond that initial consensus, there is a significant disconnect in the perceived importance of attributes among investors and advisors. The following three attributes had the greatest disparity between investors’ ranking and advisors’ ranking, and therefore indicate the greatest opportunities for advisors to position themselves to better educate and communicate with clients.
- Can help me maximize my returns (ranked #4 by investors, #14 by advisors)
- Helps me stay in control of my emotions (ranked #15 by investors, #11 by advisors)
- Understands me and my unique needs (ranked #7 by investors, #1 by advisors)
Advisors mistakenly believed their understanding of clients’ unique needs would be their most valued attribute. Although Morningstar-cited research from the Journal of Financial Planning documents the link between personalization and healthier portfolios, investors are not connecting the dots. Therefore, advisors need to help investors understand that their needs, circumstances, and view of finances pave the way to better returns down the road.
While advisors hope that investors perceive value in their help controlling emotions, investors rank it as having the least importance. Advisors know that developing a long-term mentality helps investors weather the ups and downs of the market—and that when emotions enter financial decisions, carefully laid plans can be thrown aside, critically damaging portfolios. Preparing for various scenarios, understanding a client’s view of risk, and providing educational opportunities are great ways to help clients mitigate the consequences of emotion-driven decisions.
The values of investors and advisors may not align perfectly, but helping investors understand the value of advice is nevertheless a worthy pursuit. As research in behavioral finance continues to provide additional data for assessing this value, advisors can develop the interpersonal side of their services. Investors need advisors’ help in creating well-thought-out goals and navigating the journey to meet those goals.
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