Why Do Investors Hire Their Financial Advisor?

Imagine an investor walking into your office for the first time. After a short exchange of pleasantries and introductions, you go through your standard conversation-starter questions. Then, in some form or another, you explain to the client the services you offer, hoping to convince the client to hire you. According to our research, how you explain your services can have an impact on a person’s hiring decision. And if you focus only on the cold, hard facts, you may be deterring some investors.

We gathered and analyzed data from 312 current advisor clients where we asked them to “Please list some reason why you hired your advisor.” The question was open-ended, allowing us to collect people’s thoughts in their own words. Since we collected the data using an online survey platform, the responses were also less susceptible to social desirability bias—our tendency to respond to a question in a way that conforms to societal norms. In the real world, when you ask an investor what brought them into your office, their answer may be swayed by who’s in the room—you and maybe a spouse/loved one. The online environment of our survey took that pressure away. In all, when we asked people why they hired their financial advisors, their responses were much more emotionally grounded than we anticipated.

The chart below shows the five most common reasons for hiring an advisor.

Responses under comfort handling finances included:

• To help me better navigate the number of things available to me. To help give me a better understanding and confidence in my financial security.
• I feel more secure having a different view of my finances.
• I don't like making financial decisions.

Responses under specific goals or needs included:

• Excellent referrals with proven results. We needed some outside guidance to plan for retirements.
• For better income management.
• I wanted to start investing.
• To set up annuity.
• To see if we were on track for retirement.

Responses under behavioral coaching included:

• I lack discipline to stay invested when the marketing is erratic.
• The advisor is a sane voice and I am able to bounce ideas off of them.

Responses under quality of relationship included:

• I found an advisor who understood me, and I found them to be a good fit.

So, yes, we do see that investors hire a financial advisor to address a specific financial need, but this is far from the dominant motivation. In fact, 60% of respondents cited an emotionally grounded reason for hiring their financial advisors. This suggests that although financial issues are a common driver of client hiring decisions, there is an additional aspect of emotional drivers, such as the degree to which someone feels comfortable making financial decisions and their ability to stay the course.

Our research points to the importance of addressing a client’s emotional needs during beginning conversations, but that is easier said than done. Although three in five clients may end up hiring an advisor for an emotionally grounded reason, we can’t expect investors to be forthright about their need for emotional support. Instead, advisors must address these needs in a subtle and tactful manner, which can involve addressing the key reasons we cited above. To help advisors incorporate these insights into their communications, we created a Value Prop Makeover Exercise. Download the full paper to dive deeper into the research and gain access to the exercise.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.