• / Free eNewsletters & Magazine
  • / My Account
Home>Practice Management>Practice Builder>Investors' Top Priorities in the Advisor Relationship

Related Content

  1. Videos
  2. Articles
  1. Can 401(k)s Get the Job Done?

    Roundtable Report: Christine Benz, John Rekenthaler, and David Blanchett weigh in on how this savings vehicle can be made better and used better by the increasing number of Americans who will depend on it.

  2. Managing the Risk of Outliving Your Assets

    Morningstar retirement expert David Blanchett covers the pros and cons associated with the key longevity insurance products.

  3. Benz: How Small Changes Can Bridge a Retirement Shortfall

    Bundled together, small tweaks can help investors get their portfolios ready for retirement, says Morningstar's Christine Benz in this special one-hour presentation.

  4. Session 2: Midyear Portfolio Checkup and Risk Factor Review

    Director of personal finance Christine Benz will help you check your true exposures and stress-test your holdings in session 2 of Morningstar's 2012 Midyear Financial Checkup.

Investors' Top Priorities in the Advisor Relationship

Caliber of advice and trustworthiness top the list; low-cost services a lower priority.

Michael M. Pompian, 05/19/2011

For the next five articles, we will be reviewing answers to behavioral questions posed to investors who use financial advisors from a 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 question, "What non-financial aspects of the advisory relationships are important to you?"

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

1. Rank by order of importance the characteristics you value in a financial advisor.
2. Select the top five aspects of a financial advisory relationship by order of importance to you.
3. Rank how often you prefer regular communication from your advisor.
4. How confident are you that the plan developed by your financial advisor will help you achieve your financial goals?
5. 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. It 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 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 of course 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, which 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 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 advisor. Respondents were asked to rank, based on priority, the following characteristics they value in a financial advisor:

  • Caliber of the advice I receive
  • Trustworthiness
  • Credentials/Experience
  • Understanding of my family's needs
  • Low cost
  • Communications skills
  • Proactive service

These questions are important because they examine how investors look at non-financial aspects of their relationship with their advisor, and the responses provide valuable insights into this subject.

First Priority:

As you can see, approximately half of the respondents rank "Caliber of the advice I receive" and "Trustworthiness" as either the first or second priority in their relationship with their financial advisor. There you have it. If you don't have these two elements right, you will likely have problems in managing your relationships with clients. Advisors should approach relationships with their clients as a partner in attaining financial goals.

Second Priority:

Survey respondents ranked "credentials/experience" and "Understanding of my family's needs and goals" as the next most important aspects of their financial advisor relationship. If you don't have credentials (you should get them if you don't), you had better understand the needs and goals of the families you are working with. If you can have both, you will be in a much better position!

Remaining Priorities:

Some readers might be surprised to learn that investors ranked "Low cost for services" as not a high priority when working with their advisors. Most clients are willing to pay a reasonable amount for good advice and service. Experienced advisors know this. So should you!

"Communications Skills" and "Proactive Service" round out the list. I would not take this to mean that communicating poorly and not being proactive is okay. Obviously it is not. Readers need to keep in mind this is a relative scale question--so the other items discussed earlier take priority. But advisors need to communicate clearly and be proactive with their clients. But you knew this already!

In next month's article, we will be reviewing how PEM-FA investors answered behavioral questions related to how often they prefer regular communication from their advisor.

©2017 Morningstar Advisor. All right reserved.