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Top Five Aspects of a Financial Advisory Relationship

Investment results and quality of the advisor take top billing, while fee transparency and research capabilities rank lower.

Michael M. Pompian, 06/16/2011

For the next four articles, we will be reviewing answers to behavioral questions of investors who use financial advisors from the survey I created in February 2010. The survey was completed by 980 individual investors who subscribe to either Morninstar.com and/or Morningstar investor newsletter publications. The questions cover behavioral aspects of how clients view non-financial elements of their relationships with their advisors. Last month we reviewed answers to the following question:

Rank by order of importance the characteristics you value in a financial advisor.  (Click here to see that article.)

The survey questions/statements we will review over the next four months are the following:

1. Select the top five aspects of a financial advisory relationship by order of importance to you.
2. Rank how often you prefer regular communication from your advisor.
3. How confident are you that the plan developed by your financial advisor will help you achieve your financial goals?
4. Check the three most important areas of a financial plan to you.

As you may recall from recent articles, the purpose of the survey was to gauge investing behavior and choices and how influential these choices are in the investment decision-making process. Of the 980 surveys that were completed, 306 were completed by investors that use financial advisors. The information contained in the answers given by these investors can be highly relevant to advisors in their quest to serve clients in the best way possible. It is important to remember that the Morningstar investor survey is composed of a very specific type of investor population, so let's review that now.

The population of survey takers in the Morningstar universe was generally defined as "mostly male, mostly experienced [experienced having a double meaning here--experienced in the sense that they are not new to investing and experienced in the sense that that over half of the survey takers were over 60 years old], and mostly do-it-yourself" investors. 

What this means is that the majority of survey takers were proactive, engaged and self-directed investors, which, naturally, is only a subset of all investors. The populations of survey takers that use financial advisors are likely to be somewhat less self-directed, but we can assume since they subscribe to Morningstar services, they are still somewhat self-directed. It is  important to remember not to extrapolate what is learned in this set of articles to the general population of investors because it contains many passive and/or unsophisticated investors as well as "middle of the road" investors who are somewhat engaged but don't have the time or aptitude for more. And of course, the general population of investors contains a higher percentage of women and young investors. For simplicity, I will call the investors who took the survey that use financial advisors "PEM-FA investors" going forward to stand for Proactive, Experienced and Male investors who use financial advisors. 

We will now review the answers to four questions related to how PEM-FA view their relationship with their financial advisors. Respondents were asked to rank, based on priority, their top five aspects of a financial advisory relationship. The choices were:

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