Outside voices and views for advisers

Behavioral finance can attract fee-based assets

Complement that with client segmentation capturing qualitative and emotional factors

Nov 8, 2017 @ 11:45 am

By Adam Malamed and Kirk Hulett

Most independent firms agree that successful adviser practices in the future must become more effective in gathering fee-based advisory assets.

But from there, industry views diverge. For some firms, it's solely about providing the latest technological bells and whistles for prospecting, while others purely emphasize mechanical elements of fee-based advisory work, such as portfolio construction and manager selection.

In fact, the process of determining how advisers can most effectively gather more fee-based advisory assets begins and ends with asking advisers one question: "What meaningful added value are you going to provide clients to justify your fees?"

Based on the latest research conducted at our annual ELEVATE fee-based advisory conference, one of the most important ways for independent firms to help advisers succeed in this kind of asset gathering is to help them lead with behavioral finance, and to complement that effort with client segmentation that captures qualitative and emotional factors for the adviser.


In an age when algorithms and robo-solutions have intensified fee compression for money management, advisers who are more comfortable talking about investments than emotions may find themselves challenged in defining a clear value proposition with prospects.

This is where behavioral finance coaching – the practice of better understanding a client's emotional makeup to help them avoid making emotional decisions about finances that lead to negative outcomes – presents enormous potential added value that advisers can offer.

Aging pre-retirees and retirees need enhanced guidance in navigating the emotionally charged life planning decisions many of them increasingly face. Meanwhile, the highest long-term growth potential client segment, Millennials, generally opt for advice from individuals who build a truly personal connection with them, in a relationship that is as much social as it is professional.

And these are just the ends of our '"barbell" demographics. Across the board, advice and coaching are becoming joined at the hip.

Indeed, numerous studies have shown that nearly half the performance results for clients in cases of successful investment performance can be attributed to behavioral finance-based advice, as opposed to technical investment expertise.


So how can independent firms help advisers in this area?

At a minimum, firms should provide basic coaching resources to advisers on how to talk to clients about the emotional and personal factors that drive financial decisions.

But firms that are serious about helping advisers gather fee-based assets need to provide easy access to education and training that leads to relevant credentialing opportunities.

There are a number of behavioral finance credentials available today, with one immediate example being the Behavioral Financial Advisor designation, or BFA, which is offered by Kaplan Financial Education.


Complementing efforts to lead with behavioral finance, firms can also support advisers by helping them perform client segmentation beyond just quantitative considerations.

Currently, many firms will encourage advisers with a fee-based advisory business to segment clients by assets and revenues into top, middle and lowest-tier buckets, each with preset levels of service and attention.

"Just the numbers" approaches such as this could wind up doing the adviser a disservice. Some clients with fewer assets may be particularly enthusiastic in making referrals because of positive personal chemistry with the adviser. Others may be part of a close-knit, well-heeled social group, such as a country club.

Perhaps most importantly, some clients with fewer assets could be individuals the adviser truly enjoys interacting with, and help fuel the adviser's passion for the business.


The future of the financial advice industry has yet to be written, regardless of what the doomsayers who periodically predict grim times ahead for our industry might say.

Indeed, with an enormous level of intergenerational wealth transfer poised to happen in the coming years, and population segments across all age groups that need behavioral finance-influenced advice more than ever, there's a historic growth opportunity for independent advisers.

The responsibility falls on independent firms to provide their affiliated advisers with the resources they need to capture these opportunities.

Adam Malamed is Executive Vice President and Chief Operating Officer of Ladenburg Thalmann Financial Services. Kirk Hulett is Head of Practice Management for Ladenburg Thalmann.


What do you think?

View comments

Recommended for you

Upcoming Event

Jul 10


Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in four cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video


Advisers should look beyond 529 plans for college planning

Editor Fred Gabriel talks to reporter Ryan Neal about how college-savings strategies are more important than ever as tuition costs soar.

Latest news & opinion

New ways to pay for college

Experts respond to real-life scenarios of people struggling to afford higher education.

How technology is reshaping the advice business

Artificial intelligence, Amazon and robo-advisers are some of the topics on the minds of tech experts.

Best- and worst-performing sector funds and ETFs this year

A rising tide may lift all ships, but a bull market doesn't lift all stock sectors. Here are the best- and worst-performing sectors this year, with the top and bottom fund in each sector.

Betterment slapped with $400,000 fine from Finra

Robo-adviser cited for violating customer protection rule and not maintaining its books and records correctly.

Supreme Court ruling on SEC judges unlikely to upend advice industry

But it could give rise to new hearings for some advisers who are already in litigation with the agency such as Dawn Bennett.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print