The Financial Advisor Faux Pas That Matter Most

Strong client relationships are critical to advisor success. Based on feedback from nearly 400 investors, common advisor behaviors such as failing to explain fees, using jargon, and overlooking client values can negatively impact trust and client engagement. 

In this video, Danielle Labotka, Senior Behavioral Scientist, discusses the financial advisor faux pas investors dislike most and the practical steps advisors can take to build stronger client relationships.

Danielle Labotka:

Hi, I'm Danielle Labotka, a behavioral scientist for Morningstar. In our study on financial advisor faux pas, we discovered five unintended mistakes from even the most seasoned advisors that are harming their relationship with clients. You may be surprised to hear none of these missteps were uncommon, with at least 55% of the clients reporting they've experienced each one. Now let's dive into these faux pas and how advisors can avoid them.

The top ranked issue that clients have with their advisors is not adequately explaining fees. This is a huge problem because clearly communicating where clients’ money goes is a core factor in building trust. The answer here is simple, be transparent. Prepare clear answers to questions like: How do your cost and fees break down? How do you get paid? What happens if I accept your recommendation?

Your clients want to know these things, and they want to know what they're paying for, like how often their advisor will be monitoring their investments and meeting with them. Clarity on fees and services builds trust and leads to smoother, more informed conversations.

Clients are often irked when advisors take more than a week for tasks, but our study suggests that this is less about the one-week timetable, and more about a lack of setting proper expectations. While most financial planning is long term, clients get frustrated when they're not informed about the process. The fix? Tell clients how long tasks will take and when they can expect to hear from you.

Advisors use financial jargon as part of their daily work, but these terms are not common knowledge for most clients. This can frustrate clients because it makes them feel out of the loop. The best way around this is to avoid jargon and opt for simple language without sounding condescending. To get better at communicating with your clients, practice explaining complex financial ideas to someone you highly respect who's an expert in a different field. This approach can strike the balance of expertise and approachability.

Many clients come to advisors looking for more than just investment advice. They want their money to be aligned with their values and goals. This isn't just about sustainable funds, it's about how their personal values are being considered for their financial future. To address this common faux pas, set up time for intentional discussions with clients about their goals and values. These deeper conversations often don't happen organically, so advisors can introduce tools and prompts to uncover what truly matters to their clients.

A common misstep advisors make with clients is providing insufficient details on the advice they give. This is a tricky one since many advisors feel pressure to offer clients details without saying so much that it sounds overwhelming. However, clients can feel stressed if they don't fully understand their options. The solution? Offer clients concise information that's easy to absorb. You might consider relying on visuals to convey information clearly, or using a shortened list of options broken down into pros and cons.

Regardless, it's also good to be prepared with more in-depth information if asked. Quality information from reputable sources helps clients feel confident in their decisions and builds trust.

Now for the summary. From clarifying fees and setting expectations for deadlines to using simple language, discussing values, and providing detailed advice, our study shows how to avoid common faux pas that disrupt advisor client relationships. Finding trusted resources that clients can easily understand can also go a long way to building rapport and keeping it.