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Advisor Insights

Do Advisors Know What Clients Want?

Our research finds that they are not always on the same page.

If you were to list out the characteristics that investors would find most valuable in an advisor, what would be at the top of your list? I bet it would be things like “helping me reach my goals,” “having the appropriate skills and knowledge for the job,” and “communicating well.” At least, those were the characteristics that scored highest on a recent study our team conducted. Your clients, or you personally, might have different priorities—nothing wrong with that—but these three would be a good guess for the average investor.

The question of what investors value is interesting in its own right. This study also looked at two additional questions: Do advisors accurately intuit what investors are looking for, and how do the perceptions of advisors and investors line up with research studies about the value of advice? In both cases, there’s a pretty significant disconnect. To better understand that, let’s learn more about the research.

About the Study
In this study, Morningstar researchers Sam Lamas, Ryan Murphy, and Ray Sin surveyed investors to ask them a simple question: What do you value most when selecting a financial advisor? Similarly, they asked advisors: What do think investors value most when working with a financial advisor? Each group was asked to rank 15 attributes in order of importance:

  1. Helps me stay in control of my emotions
  2. Has a good reputation and positive reviews
  3. Is knowledgeable on tax consequences of investing
  4. Can help me maximize my returns
  5. Is approachable and easy to talk to
  6. Helps me reach my financial goals
  7. Is easy to get a hold of
  8. Has a clear fee structure so I know what I'm paying for 
  9. Understands me and my unique needs
  10. Uses up-to-date technology
  11. Acts as a coach/mentor to keep me on track
  12. Presents themselves in a professional manner
  13. Keeps my interests in focus with unbiased advice
  14. Communicates and explains financial concepts well
  15. Has the relevant skills and knowledge

After comparing the average ranking of each attribute between advisors and investors, we found some agreement between both groups on what attributes are important and valuable, but not strong agreement. The correlation between both groups’ average lists is about 0.46—meaning there is a moderate relationship between the two lists.

In many areas, investors and advisors were aligned. “Helps me reach my financial goals,” for example, was ranked first by investors and second by advisors. Similarly, “communicates and explains financial concepts well” was third for investors and fourth for advisors.

Smallest Gaps Between Investors and Advisors

  • Communicates and explains financial concepts well
  • Presents themselves in a professional manner
  • Helps me reach my financial goals

Largest Gaps Between Investors and Advisors

  • Can help me maximize my returns
  • Helps me stay in control of my emotions
  • Understands me and my unique needs

But there are interesting disagreements on what’s considered valuable, and this suggests that there are opportunities for advisors to better address investors’ needs and educate investors on the real value of advice.

Disconnect No. 1: Maximizing Returns
First and foremost, investors, on average, ranked “can help me maximize my returns” near the top (fourth), while for advisors, it was almost at the bottom (14th out of 15). This shouldn’t surprise anyone. For years, professional financial advice was promoted as a way to beat the market, and changing the “returns first” perception won’t happen overnight.

But this is still a real problem. Why? Because it means that a significant subset of investors may be expecting their advisors to take on inappropriate levels of risk or to handpick stocks in a likely fruitless effort to beat the market. Those investors are either likely to be disappointed by their advisor (in aggregate, we can’t all beat the market), or by what happens when risk’s downside is felt. A more thoughtful approach is often to focus on goals and what’s required to meet them.

Disconnect No. 2: Perception Versus Independent Research
There was another big difference that’s worth talking about. Research suggests that cognitive biases and other behavioral obstacles often inhibit investors from making sound financial decisions, especially when their emotions are running high. Yet, investors ranked “helps me stay in control of my emotions” and “acts as a coach/mentor to keep me on track” at the bottom: 15th and 13th, respectively. Advisors ranked those two points considerably higher, at seventh and 11th.

Based on a variety of independent research studies, investors are significantly underestimating the importance of these factors, however. According to studies by Vanguard[1] and others, the single most important service that advisors provide for their clients is behavioral coaching: helping clients manage the ups and downs of the market and their financial lives, without unduly changing their investment strategy. Other studies say that behavioral coaching is more important than tax management, rebalancing, asset allocation, and product allocation.[2]

Despite its benefits, behavioral coaching is all but ignored by investors who took our survey. This is obviously an opportunity for advisors to better educate clients on how impactful behavioral coaching can be in helping them reach their goals. It will help clients focus on the things that matter most.

What Does This Mean for Advisors?
One clear lesson from this research is that investors and advisors aren’t necessarily on the same page. Investors and advisors normally talk about the client’s goals and investment strategy. But if an investor only cares about maximizing her returns, there may be misalignment. The safest strategy is often simply to ask upfront: “In addition to meeting your goals, what is it that you find important?”

This research also provides a warning about investor overconfidence. A range of research studies have shown that investors sometimes struggle to stay the course. That wasn’t evident in investors’ responses, however. In general, it’s far easier to believe that other people will get into trouble than that we ourselves will; it’s human, it’s understandable, and it’s also a problem.

I look to Ben Graham’s famous quote for a blunt reminder of the challenge at hand: “The investor’s chief problem—and even his worst enemy—is likely to be himself.” No matter how long I study investing and behavioral finance, the risk that I’ll be my own worst enemy as an investor doesn’t go away. Not all investors need a coach, and indeed, sometimes advisors can use help overcoming common biases, as well. For each of us individually, then, the challenge is one of self-recognition— recognizing that we, too, might struggle to manage our emotions and stay on track during volatile markets. For advisors, there’s a special challenge and opportunity: helping clients and prospective clients see the need for and the unique added value that comes from an advisor who can serve as a behavioral coach.

[1] Kinniry, F.M., Jaconetti, C.M., DiJoseph, M.A., Zilbering, Y. & Bennyhoff, D.G. 2016. “Putting a Value on Your Value: Quantifying Vanguard Advisor’s Alpha.” The Vanguard Group.
[2] See, for example, Blanchett, D. & Kaplan, P.D. 2018. “The Value of a Gamma-Efficient Portfolio.” Journal of Retirement, Vol. 5, No. 3, PP. 32–56. 2018) and Merrill Lynch. 2016. “The Value of Personal Investment Advice.” White Paper.

This article originally appeared in the Summer 2019 issue of Morningstar magazine. To learn more about Morningstar magazine, please visit our corporate website.