The Common Mistakes That Advisors Should Avoid

New research by Morningstar identifies common advisor behaviors that may damage relationships with clients.


Illustration by RIA Intel

Keeping clients happy is hard, and advisors may be the cause, according to new research by Morningstar.

Morningstar found that seven common advisor behaviors may unintentionally damage the relationship with clients, to the point of negatively impacting a client’s decision to recommend or further engage with their advisor.

Samantha Lamas, senior behavioral researcher at Morningstar, said that while advisors often focus on how to build these client relationships, understanding why it breaks down is just as important.

“…advisors think ‘Maybe I can just meet them every other quarter and not communicate in between, and they should be fine,’” Lamas said. “But in this day and age of robo-advisors and AI, that personal relationship management angle in financial advising is even more important.”

Morningstar found that not explaining fees, taking more than a week to complete tasks, using jargon, not considering a client’s values, not providing enough details, making the client fill out long, complex forms, and not providing holistic advice, were the top disliked behaviors.

Advisors performed these behaviors so often, that at least 50 percent of investors with advisors said they had experienced one of these behaviors and on the high-end 77 percent had experienced that behavior.

Lamas said that advisors often place the blame for a bad relationship with the client on the wrong thing. “Advisors are just so focused on these big catastrophes, these big mistakes, these big disconnects, that they’re kind of missing all these small little details of why a person’s not so happy with their advisor,” Lamas said. “[But] disengaged clients can be just as costly to advisors as being fired because now this advisor is giving up all these resources to work with this client and this client is not giving it all back.”

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Morningstar presented 15 negative behaviors to 399 investors with advisors and asked them to rank how often they encountered them, how these encounters made them feel, and how they might have affected their relationship.

Morningstar found that each of the seven disliked behaviors had a moderately negative impact on the client’s relationship with their advisors. These behaviors often negatively affected a client’s decision to recommend their advisor, encouraged them to invest less, and hurt the client’s trust.

According to the report, the frequency which the client experienced the negative action did not have a noticeable impact according to the report.

“If a client strongly dislikes an action, it will have a negative impact on their relationship with their advisor regardless of whether the advisor has only done it once or a dozen times,” the report states.

However, the frequency of contact with an advisor could lessen the impact. Investors reported fewer negative emotions toward behaviors when they interacted more frequently with their advisors, according to the report.

Lamas said it ultimately comes back to communication.

“We’re working with clients that have a long timeframe usually. And it’s completely fine if you take one or two weeks to complete ‘X’,” said Lamas. However, if the advisors doesn’t adequately communicate project’s timeline then that can leave clients unsure if their advisor is even working, said Lamas.

“Communicating exactly what they should expect from you as their advisor and those timelines I think could appease a lot of these communication issues,” said Lamas.

In April, J.D. Power reported that investor satisfaction with advisors had plunged more than 17 points year-over-year. A study published this month by Broadridge Financial Solutions found that 69 percent of advisors considered deepening relationships with clients as a top three priority.

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