Advisors urged to "take a look at their book" to tackle advice gap

It appears advisors are failing their clients in the most crucial way possible – giving them advice.

More Americans are seeking help for financial tasks, often with financial professionals, although advice gaps still exist, according to a new market sizing report from consumer research firm Hearts & Wallet.

An advice gap, according to the firm, is defined as U.S. households that found a financial task very difficult and have not sought help in the past 12 months. At the national level, the biggest advice gaps in dollar terms nationally are estate planning, “handling market volatility emotionally,” Roth conversion, buy/sell specific securities, balancing goals and RMDs.

“I think the biggest thing [for advisors] is that they're probably not covering all their customers very thoroughly,” said Laura Varas, CEO of Hearts & Wallets. “We've been doing a lot of what we call consistency testing and some very venerable firms that think they’re giving really deep and broad advice during a full-service model, one third of their customers say 'I don't get any advice and service'.”

Varas says the main takeaway here for advisors is “to just take a look at their book.”

“If they haven't talked to someone in a while, pick up the phones, give them a call,” she said.

Among households at the national level, the biggest advice gaps are “choosing appropriate investments”, “figuring out how to fund my expenses” and “handling market volatility emotionally”, each nearly 24 million households, followed by “plan to balance my short- and long-term goals.”

The No. 1 most popular task for seeking help is “calculating and paying income tax” with 18 percent of households. Other tasks show much lower rates for seeking help. Meanwhile, for retirees in the $1-million-to-under-$10-million segment, the No. 1 advice gap in household and asset terms is “strategy to withdraw income from multiple accounts.” 

Possible reasons for an advice gap include consumers in households may not know that they can get help on a topic, they may consider the price of advice too high, or advice may not be available to them because they don’t a relationship with a store to deliver advice on a task.

Varas admits there’s three interesting findings from the report. One being how many households find one financial task difficult, that is, 57 percent out of 131 million households. But more importantly, she says, "they’re coming in clusters."

“We've been trying to figure this out for years, and they come in clusters. It's pretty hard to just look at tasks in isolation. They're interrelated,” she said. “They're seeking help because they're difficult but they're mostly seeking help because they know where to find help.

“The impact of having an existing relationship is much higher than the impact of having difficulties with tasks.”

Secondly, Varas points to the stats that show young people are asking for help.

“It’s doubled in the last 10 or 12 years,” she says. “They’re seeking help from different kinds of advisors, not only paid investment professionals, but phone reps too. They're not going to their parents; they're going to professionals.

“But this is sad too, because they're the ones who have the fewest people falling all over themselves to help them,” she added.

The third, which she says is “the biggest and coolest”, is the loyalty premium.

Financial services firms who help with multiple financial tasks yields a loyalty premium. An existing relationship that offers both advice and service increases seeking help by over 100 percent because customer advice experiences address more tasks, and in more detail, than prospect advice experiences, Hearts & Wallets said.

Hearts & Wallets also found that 33 percent of US households sought help on three or more tasks while 89 percent that wanted help relied on financial professionals to some degree.

Accordingly, customers who are receiving help on more tasks are about twice as likely to refer family, friends or colleagues to those advice experiences.

“Everybody's always asked, ‘How can I get more referrals?’ Well, this is one of the ways,” Varas says.

“You've got to have the experiences that are set up to help with multiple tasks. Advisors have a natural edge because the human brain can think about multiple tasks a lot easier than an algorithm that hasn't been programmed to do that.”