Over the past 10 years, the wealth management industry has undergone a transformative shift in how it delivers value to clients.
First, there was a move from commoditized, investment-based advice to more comprehensive and holistic advice. Now, as technology continues to threaten the overall value of technical knowledge, there is an increasing emphasis on the human side of financial advice. McKinsey & Company affirmed this trend in a 2020 report, predicting that the movement will only continue to grow by 2030.
“Advisors are evolving from traditional investment managers into integrated life and wealth coaches, guiding clients through a variety of disciplines—including banking, health and longevity, tax planning and estate management. As the industry pivots from risk-based portfolio construction to outcome-based planning, registered investment advisors will need to adapt their recruitment and training strategies accordingly.”
A pivotal but underserved role has emerged in this new reality: the Chief Behavioral Officer. This position aims to deepen advisors’ understanding of client behaviors, biases and decision-making processes, with the dual goals of enhancing client satisfaction and fostering organic growth. Let's explore the multifaceted impact a CBO can have on clients and RIAs and why their presence will be essential for the prosperity of the wealth management sector in the decade to come.
Understanding Client Behavior
A crucial task at the heart of a CBO’s responsibilities is assisting clients and their financial advisors recognize and alter negative behavioral patterns and cognitive biases. A CBO can offer effective and sustainable methods for clients to adopt new, positive habits. Why is this important? Research from Vanguard reveals that behavioral coaching can enhance investors’ net returns by as much as 1% to 2%, a significant increase that underscores the CBO’s potential value and is likely to delight the client.
As clients’ demographic profiles trend younger, understanding these behavioral dynamics becomes increasingly important. Younger clients, particularly Gen Y and Gen Z, demand more from their advisors, seeking expanded services that reflect their unique needs. Fidelity notes that this demographic “tsunami” means that these cohorts, who account for 42% of the U.S. population, will play pivotal roles in the growth, valuation and long-term success of RIAs.
According to Morningstar, clients are increasingly evaluating their advisors on the emotional support they provide, especially when making sound decisions regarding their money. In response, CBOs are charged with crafting training programs and developing resources within RIAs to equip both clients and advisors to master the human side of money.
Elevating the Client Experience Via Technology
In addition to providing emotional support and behavioral coaching, CBOs are essential in utilizing technology to enhance the client experience. Modern RIAs increasingly rely on sophisticated tools like personalized dashboards to engage with clients and guide their decision-making. However, these tools can fail to create the desired impact without a thoughtful, behaviorally informed design.
A well-designed client interface should do more than just display financial data and investment performance. It should prompt clients to take meaningful actions to improve their financial outcomes. Whether it’s encouraging clients to adjust their savings rate, revisit their estate plan or check on their progress toward long-term goals, the right technology can facilitate more productive conversations between advisors and clients.
CBOs should work closely with their tech teams to ensure that client-facing tools are designed with behavioral insights in mind. For example, what does the client see when they log into their dashboard? Does it inspire them to take action and change their behavior, ultimately advancing and enhancing their financial outcomes and goals? This approach can help to facilitate better conversations, deepen relationships and ensure that clients are using their money to fund the life they want to live.
The Future of Advice Is Human-Centered
A shift is underway, and traditional portfolio management and investment strategies are no longer enough to differentiate RIAs from their forward-thinking competition. Increasingly, success will hinge on an advisor’s ability to offer value regarding the human side of advice.
This shift underscores the importance of educating clients about their behaviors and helping them understand why they make certain financial decisions. CBOs are uniquely positioned to lead this charge, ensuring that clients not only gain insight into their behavior but also have the tools and support they need to make lasting, positive changes.
At the end of the day, clients want more than just financial expertise—they want a trusted partner who understands their values, goals and aspirations. CBOs will play a critical role in fostering these relationships, guiding clients to maximize their wealth and quality of life. By doing so, RIAs can position themselves for long-term growth, improved client retention and a stronger competitive edge.
Brendan Frazier is Chief Behavioral Officer at RFG Advisory.
