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Do Investors See Financial Advisors As Behavioral Coaches?

Our survey explores what attributes investors value in an advisor

Samantha Lamas  

 

For financial advisors, understanding what your clients value is critical to attracting, retaining, and satisfying their needs. However, uncovering what clients value is not as easy as it seems.

At Morningstar, we conducted a survey to examine investor perspectives on the value of working with a financial advisor, and how that compared with what advisors thought investors would value about working with financial advisors. Although we did find some expected results, we also found interesting disagreements on what's considered valuable, suggesting opportunities for advisors to better address investors’ needs and educate investors on the real value of advice.

Measuring the value of advice

In our study, we asked individual investors to rank a set of common attributes, shown in the table below, in order of importance. We also gave the list to advisors and asked them to rank them in the order they thought investors found most valuable.

Many of the attributes that investors value will come as no surprise to advisors—for example, helping investors reach their financial goals; helping them understand financial concepts; and having the relevant skills and knowledge typical of a qualified, financial advisor.

However, our survey highlighted a few crucial disagreements that advisors can use as key insights to improve their practice, one of which concerned the value of behavioral coaching—specifically, advisors’ role in managing investors’ emotions. Investors rated "help me stay in control of my emotions" as the least-valuable attribute.

Investors underestimate the value that modern advisors bring as behavioral coaches

Research in behavioral science shows that cognitive biases and other behavioral obstacles often inhibit investors from making sound financial decisions, especially when their emotions are running high. One solution to help investors avoid common behavioral biases and the financial mistakes that can come with them—such as panic selling in a market downturn—is for advisors to be behavioral coaches. Advisors can corral these tendencies and help build a solid, trusting relationship with their clients to help drive investor success. Vanguard found that behavioral coaching is the single most influential thing an advisor can do, adding, on average, 150 basis points.

Our results indicate that investors don’t understand the value that advisors provide by helping them control their emotions during these types of situations. Investors don’t seem to be aware of the value good advisors bring by helping clients make good decisions, avoid bad behaviors, and develop good investing habits. Although behavioral coaching is not something investors are currently looking for, this gap represents a tremendous opportunity for modern advisors to communicate the value of this attribute to help their clients avoid committing investing pitfalls.

Download our full research paper "The Value of Advice: What Investors Think, What Advisors Think, and How to Get Everyone on the Same Page"

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