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The Disconnect Between Investors and Advisors

New Morningstar research uncovers what investors actually want from their advisors.

If you were to list the characteristics of an advisor you'd find most valuable, what would be at the top of your list? I bet it would be things like helping you reach your 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. You personally might have different priorities--nothing wrong with that--but these three would be a good guess for an average investor.

The question of what investors value is interesting in its own right. This study also looked at two more questions: Do advisors correctly understand 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 study (which you can find here, if you'd like to dig into the details).

About the Study In this study, 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? And, similarly, they asked advisors: What do you think investors value most when working with a financial advisor? Each group was presented with a list of 15 options to rank (for comparability) that covered the major attributes: from knowledge and skills to maximizing returns, giving unbiased advice, or using up-to-date technology. The participants ranked each of the options, from first to 15th.

Disconnect 1: Investors and Advisors In many areas, the investors and advisors were aligned: "Helps me reach my financial goals" was number 1 for investors and number 2 for advisors. Similarly, "Communicates and explains financial concepts well" was number 3 for investors and number 4 for advisors.

The differences, though, were intriguing.

First and foremost, investors, on average, ranked "can help me maximize my returns" near the top (fourth), while for advisors, that was almost at the bottom (14th out of 15). Personally, I see that as 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 2: Perception Versus Independent Research There was another big difference that's worth talking about. Investors ranked "helps me stay in control of my emotions" and "acts as a coach/mentor to keep me on track" at the bottom: 15 and 13, respectively. Advisors ranked those two points considerably higher, at 7 and 11. Based on a variety of independent research studies, investors are significantly underestimating the importance of these factors. 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. Behavioral coaching beats tax management, rebalancing, asset allocation, and product allocation.[2] Advisors, and especially investors, aren't focusing on what matters most, which is likely to hurt investors in the long run.

What Does This Mean for Investors? One lesson from this research is that investors shouldn't assume a particular advisor knows what is important to them. Investors and advisors normally talk about the client's goals, of course, and investment strategy. But if an investor really cares about having an advisor that is easy to get a hold of, there may be a misalignment. The safest strategy is often simply to be clear up front: "In addition to meeting my goals, this is what I find important..."

This research also means that we're probably all a bit overconfident. A range of research studies has shown that investors sometimes struggle to stay the course. But, it's far easier to believe that other investors will get into trouble than it is that we ourselves will. It's human, it's understandable, and it's also a problem. Personally, 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. As investors, we don't always need a coach (sometimes our potential coach needs just as much help as we do). However, I think we're better off when we recognize that we, too, might struggle to manage our emotions and stay on track during volatile markets.

This study is part of the Investor Success Project; more information about the series can be found at

[1] Kinniry, F.M., Jaconetti, C.M., DiJoseph, M.A., & Zilbering, Y. 2014. "Putting a Value on Your Value: Quantifying Vanguard Advisor's Alpha." The Vanguard Group.

[2] Blanchett, D., & Kaplan, P.D. 2018. "The Value of a Gamma-Efficient Portfolio" J. Retirement, Vol. 5, No. 3, P. 32.

Merrill Lynch. 2016. "The Value of Personal Financial Advice." White Paper. GWIMCIOValueofanAdvisorWhitepaper.pdf.

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Steve Wendel

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Steve Wendel is head of behavioral science for Morningstar, where he leads a team of behavioral scientists and practitioners who conduct original research to help people invest and manage their money more effectively. Before assuming his current role in 2015, he was principal scientist for HelloWallet, a company that specializes in web and mobile financial wellness programs, where he studied savings behavior and coordinated the research efforts of HelloWallet’s advisory board. Morningstar owned HelloWallet from 2014 to 2017.

His latest book, Improving Employee Benefits, shows HR practitioners how they can use behavioral economics to help employees to take action on their benefits. In 2013, he published Designing for Behavior Change, which describes HelloWallet’s step-by-step approach to applying behavioral economics and psychology to product design.

Wendel holds a bachelor’s degree from the University of California, Berkeley, a master’s degree from The Johns Hopkins University School of Advanced International Studies, and a doctorate from the University of Maryland, where he analyzed the dynamics of behavioral change over time.

Wendel is also the founder of the Action Design Network, a nonprofit organization that teaches members how use behavioral economics and psychology in product design. The network hosts more than 5,000 behavioral practitioners at events around the country, including the annual Design for Action Conference. Follow Steve on Twitter: @sawendel

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