Over the past couple of decades, financial advice has gradually shifted from being primarily product-oriented to being more behaviour-oriented. A growing body of research shows that the true value of a professional adviser or planner lies less in selecting products than in guiding client behaviour, and new generations of advisers are increasingly embracing a more holistic, behavioural approach. But does the public understand the positive implications of this shift, or do most people still view an adviser as someone to go to only when they need a certain product or seek specific financial expertise?
Recent research by Morningstar suggests that while people do have emotional as well as more practical financial reasons for consulting an adviser, many still fail to appreciate the broader, longer-term benefits of the behavioural approach – and the advisory industry is still not effectively communicating its value in this regard.
In a presentation at the recent Morningstar Investment Conference, Dr Ryan Murphy, Global Head of Behavioral Insights at Morningstar, discussed recent research done in association with behavioural scientist Dr Danielle Labotka and senior researcher Samantha Lamas on why people consult financial advisers. Do they seek advice about a specific financial need, or do they consider other qualities an adviser brings to the table?
In their paper, “The Evolving Value of Advice: What Clients Look for When They Hire a Financial Advisor,” Murphy, Labotka and Lamas analysed responses from 623 clients of financial advisers in the US and the UK, and found, fairly surprisingly, that 68% of them gave emotionally-related reasons for seeking advice, while 32% had specific financial reasons for doing so. They categorised the responses as follows:
• Comfort in handling finances (32%, emotional): Reasons included “To help give me a better understanding and confidence in my financial security”, “I feel more secure having a different view of my finances”, and “I don’t like making financial decisions”.
• Specific goals or needs (32%, financial): Reasons included “We needed guidance to plan for retirement”, “I wanted to start investing”, and “To set up an annuity”.
• Behavioural coaching (17% emotional): Reasons included “I lack discipline to stay invested when the market is erratic” and “They are a sane voice and I am able to bounce ideas off them”.
• Other (emotional): Other respondents said they were referred to an adviser through family or friends or had found an adviser with whom they could build a strong relationship.
Murphy said the fact that only a third of responses were in the “financial” category and only 17% in the “behavioural coaching” category showed there was a possible disconnect between how advisers view themselves and how prospective clients view them. Advisers should not underestimate the emotional factors that motivate people to see them. However, they also need to acknowledge that clients still do not fully recognise the value of behavioural coaching in helping to keep them on track to achieve their financial goals.
He said the behavioural coaching aspect of advisers’ services must be communicated in ways that can be understood and appreciated by potential clients. In their marketing material, advisory practices need to reframe their value proposition, avoiding industry jargon where possible. For example, while the term “behavioural coaching” is widely used in the industry, most clients have no idea what it means. Preferred wording would include words and phrases such as “guide”, “educate”, “financial goals”, “help navigate”, “help you stay on track”.
As a prospective client seeking financial advice, a competent adviser or planner should be able to gain your confidence regarding money issues, provide necessary financial knowledge and expertise, and implement appropriate insurance, tax, investment, retirement and estate planning strategies. But top-tier planners, such as those with the Certified Financial Planner designation, will go further – they will coach you to act in ways, which may not be intuitive to you, that advance your longer-term goals, including motivating you to stick to your financial plan and guiding you on what to do (or not to do) in certain financial situations. This is one of their greatest strengths, and they need to publicise it.
