It’s time to look beyond the numbers to help strengthen client relationships

In-depth research and new partnerships are needed to investigate the rational and emotional ways investors think about money, investing and their advisers.

The 24-hour news cycle besieges investors with news stories, sound bites and financial data every moment of every day, forcing them to constantly reassess their financial well-being. Technology is vastly altering the dynamics of our landscape, as the chatter surrounding robo-advisers continues and investing technologies gain more adherence. And the very model of financial advice itself has shifted, with fee-based compensation models gaining a critical mass among financial advisers.
All of this change raises some questions: Do the standard measures for asset managers still apply? And if not, what needs to change? To answer that, we need to step back and look at what investor research is telling us about the world we live in today.
THE ‘HUMAN ELEMENT’
One significant trend that’s emerging is that the “human element” is becoming increasingly important. In a recent MIT AgeLab study, Dr. Joe Coughlin, founder and director of the MIT AgeLab, analyzed online reviews of financial advisers and identified the seven characteristics that are most important to clients. While expertise and effectiveness ranked at the top of the list, so did softer, more immeasurable qualities.
“Empathy was nearly equal in prominence to expertise,” Mr. Coughlin’s research found, “and a high level of prominence was also associated with personalization (i.e., services designed ‘for me.’)”
Another study, conducted by Barnaby B. Riedel, chief strategist of Riedel Strategy, found that when people think about their financial life, they really aren’t thinking about it in monetary terms. Rather, they think of it in terms of their family, their health and home, their work and their legacy.
PAIN POINTS
Research suggests that pain points for financial advisers exist, as well. According to a study completed by the Center for Applied Research, half of all investors do not believe that their financial advisers are acting in their best interest, and this distrust ultimately causes investors to believe that they no longer need the services of an adviser.
Whether or not that figure reflects the actual client experience, the fact is that these types of perceptions exist and need to be addressed. Investors are measuring their advisers not just by the numbers, but on how they meet their expected levels of communication, personalization and trust. And if advisers are being measured differently, then we as asset managers need to change our own benchmarks as well.
(Related read: How advisers will communicate with their clients in five years)
Quantitative performance, our industry’s legacy benchmark, is important — tremendously so. Without it, we’re not doing our jobs as asset managers. I believe, however, that it’s time for us to look beyond just the numbers and start to place equal emphasis on qualitative performance — how we as an industry are helping financial advisers strengthen their relationships with clients so those clients can better reach their goals. As with any relationship, it starts with understanding investors for who they are and what they want to accomplish, and interacting with them on a more personal level.
To facilitate the investor-adviser connection, asset managers should be using in-depth research and new partnerships to investigate the rational and emotional ways investors think about money, investing and their financial advisers. And in doing so, we should be developing solutions and tools that advisers can use with real-world clients to build better, stronger relationships.
EARNING TRUST
An irony of this focus on the human side of investing is that quantitative performance rises in tandem. Financial advisers who better understand their clients, have earned their trust, and who offer relevant counsel through market ebbs and flows may ultimately reap greater returns for their clients. The reality is that investors who make emotional investment decisions and move in and out of the markets typically underperform the S&P 500 Index, while investors who ride out the market’s ups and downs earn above-average returns. A financial adviser who understands their clients’ individual mindsets will be better positioned to help their clients become better savers and true, long-term investors, making better progress toward their financial goals.
Investing is about more than simply allocating money and getting numerical returns — it’s about why we invest, how we plan to use our wealth and what factors influence our goals. Alpha is expected of our industry by investors, but they also want more; they want understanding, empathy and personalized guidance. Performance isn’t just about how mutual funds measure up in comparison to indexes. It is also about how advisers help their clients realize and achieve their goals. If we, as asset managers, make it possible for real people to attain their dreams — what they have worked hard for, planned for and envisioned for years — then that is a real indication of performance.
James E. Davey is president of Hartford Funds.