There are many ways that value is expressed in the relationship between a financial planner and a client; the most obvious being the way that an adviser can guide a client towards their financial goals, enabling a client to live the life they want in the future. Offering clear, unbiased advice is also viewed as an important source of value.
There are other, more subtle, ways that advisers deliver value – ways that might not be quantifiable as increased returns.
For instance, financial advisers can demonstrate whether you have the financial security to move your life forward in the direction you want to take. Knowing you have this kind of security can provide you with a general confidence boost that can permeate through to other areas of your life. After all, the feeling of financial insecurity can have a large effect on your moods, emotions and personal relationships.
Researchers from Morningstar conducted a survey with 693 individual investors and 161 financial advisers about which attributes of the client/adviser relationship they thought were most important. Respondents were asked to rank 13 attributes of the service financial advisers offer from the most important to the least important.
On the whole, there was a ‘moderate agreement’ between both groups’ lists – a correlation of 0.46 for those of you who appreciate statistics. Investors placed “Helps me reach my financial goals” first, and advisers put this second, showing the importance that both parties place on creating a cohesive financial plan that works towards clients’ personal goals.
The survey results are most interesting when we begin to look at the points of disconnect between the two groups. Here, you can see the places where advisers really think they can deliver value that their clients might not be aware of.
The biggest disconnect that the survey found was with the goal “Can help me maximise my returns”. Investors put this fourth and advisers put this twelfth.
There is a reason why financial advisers place this further down their list of priorities.
If, for example, a client approaches an advice firm with three years to go before retirement, with a desire to maximise investment returns before their retirement, they may say, “I want you to structure my portfolio so that it will grow rapidly, allowing me to retire with the largest possible nest egg”.
Here, most advisers would try to communicate a goal-based approach in favour of one that prioritises short term gains.
An investing approach that aimed ‘to maximise returns’ would add a lot of risk into the equation, risk that could potentially jeopardise the client’s ability to retire comfortably.
Most advisers would try to explain to the client that the importance of adopting a goal based approach that reallocates funds to low risk investments would be a better idea in this situation, as it would increase the client’s chance of achieving their goal of a comfortable retirement.
Financial advice is about more than high returns
A financial adviser is in an important position to show clients the value of a broader goals-based approach to investing and build long term trust that doesn’t fall when the market swings. Research shows that this interpersonal side of advice might be the most valuable aspect of professional advice.
In the above example of a client approaching retirement, the valuable interpersonal skills would involve the clear communication that demonstrates to the client the value of a goals-based approach, rather than emphasising short term returns.
Returns aren’t the be-all and end-all – advice should be about much more than stock picking on behalf of an investor. Much of the value comes from the relationship itself, a relationship that can lead to a cooperative financial planning approach that places the client’s life goals and finances in alignment.
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The value of your investment (and any income from it) can go down as well as up and you may not get back the full amount you invested.