Fifteen years ago, Carol Anderson wanted to learn how well financial planners thought they understood their clients’ values and goals and to see if clients felt the same way. The founder and president of Portland, Oregon-based Money Quotient, an organization that researches, creates tools for, and educates wealth managers about building relationship with clients, found that advisor and client answers were similar; within two percentage points of the other.
Since then, something has changed.
In the spring of 2021, Anderson conducted the same study with a new, larger group of 352 financial planners and 429 of their clients and the answers were considerably different. Both financial planners and clients said they understood each other less than they did in 2006. But financial planners scored themselves much better than clients did in 2021. Overall, planners rated themselves between 15 to 36 percentage points higher in every category than their own clients, according to a report by Money Quotient, the Kansas State University Personal Financial Planning Program, and published by the Financial Planning Association.
“There's this disconnect in how the planners evaluate how they're connecting with their clients, and how the clients view that connection, that's important. It affects the working relationship, the level of trust and commitment that the client has in their planner,” Anderson said.
Clients who are unhappy or don’t trust their advisor are more likely to leave them, Anderson said.
In one section of the survey, participants were asked to evaluate their financial planner's efforts to learn about their cultural values, personality types and traits, attitudes and beliefs about money, and family history. In every category of the recent study, planners rated themselves significantly higher than clients.
The survey also asked clients if their financial planner communicated recommendations in ways they could understand; explained the pros and cons of investments to clients; kept them well informed about investment performance; and met financial education and information needs. Again, advisors underestimated how much their communication with clients deteriorated. In the 2006 study, 96 percent of planners indicated they carefully considered the terms and language they used, and 94 percent of clients agreed. In 2021, 84 percent of planners said the same thing but only 51 percent of clients shared that opinion.
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When asked how open a financial planner was to discussing topics such as what clients value most in life; whether their financial recommendations reflected a clients personal goals, needs and priorities; and if the planner communicated the importance of developing a holistic financial plan, wealth managers were overconfident. Eighty to 90 percent of planners said they were adequately addressing those things while 39 to 51 percent of clients felt the same way.
There are a few reasons for the divergence in perceptions, according to Anderson. The world changed between 2006 and 2021. Investors and advisors have lived through the Great Recession, and now the Covid-19 pandemic.
“There’s been a whole series of international and economic events that have really shaped [investors’] and everyone's confidence in the market,” Anderson said.
Client expectations have also shifted. Investors today value a more personal relationship with their advisor, Anderson said. Advisors can’t just rely on high returns to engender the goodwill of their clients.
“Good relationships between clients and planners have to be based on something that's much more tangible in terms of the type of relationships that they develop, and the ones where the planner is much more in tune with what's going on in the client's own world,” Anderson said.
Even if advisors are tracking clients' personal information and perceptions of the service they are getting, advisors might not understand what those things mean, what changes to make, or how to show the value of tracking that information to clients.
Clients "can't pinpoint, ‘oh, yeah, my planner really did want to get to know what my personality was like and how that affected my financial decisions.’ I mean, they, they don't have anything tangible to make that evaluation,” Anderson said.
She recommended that wealth managers give clients questionnaires and sit with them to explain why the qualitative data gathering is important and how the relationship will benefit.
Holly Deaton (@HollyLDeaton) is a staff writer at RIA Intel and based in New York City.