Behavioral scientists at Morningstar have discovered investment performance isn’t quite as important as trust, communication and a little bit of therapy when it comes to client retention in the field of financial advice.
Building on earlier research that found clients are most likely to fire an advisor due to the quality of advice and services received or the quality of the relationship in general, Morningstar parsed responses from 620 advisory clients, gathered in 2021 and 2022, to learn what keeps them from jumping ship even when markets hit a rough patch. Answers fell into three categories: emotional, financial and other.
Emotional motivations accounted for 59% of responses. Discomfort managing one’s own finances was the top reason, cited by 37% of clients; No. 3, identified by 16%, was the desire for a financial coach able not only to educate, but also help curb impetuous spending or investment behaviors.
Other emotion-based responses included the quality of the relationship with the advisor, the quality of communications between investor and advisor, the way the advisor presents themselves and whether they were recommended by a friend or family member.
In second place, 22% of investors said they stick around for the quality of advice and services. Just 12% mentioned returns and another 9% said their advisor is able to address their specific needs or goals. Service costs were also a consideration.
In the ‘other’ category, respondents said the advice they’re receiving is a free benefit or that they simply haven’t been motivated to make a change.
“These results support the importance of the interpersonal aspect of a financial advisor’s role,” Morningstar’s Samantha Lamas and Danielle Labotka stated in their report, which noted that respondents were able to provide more than one answer.
The Morningstar study also endeavored to understand whether demographic differences play a role—and found they do not.
“We not only found that no demographic variable provided meaningful insight into the exact reason why clients kept their advisor, we also found that no demographic variable provided insight into whether someone would even cite an emotional or a financial reason,” according to Lamas and Labotka.
“This lack of a finding actually has a fair amount of meaning behind it. It points to the importance of these different motivations to investors regardless of their backgrounds or demographics. It also reminds us that who a person is as an individual likely provides deeper insights into their behavior than what kind of persona they typically fit into,” they wrote.
The researchers provided some recommendations along with the findings, virtually all of which have a communications component. Building trust is No. 1.
“Our previous research indicates trust can be built on the foundation of a strong relationship in which an advisor cares about the client’s future, acts in line with the client’s best interest, and expresses similar values,” according to Labotka. “Such a relationship requires having more-productive conversations with clients. Although this can be daunting, using frameworks and ready-made guides for discussions can foster these deeper relationships.”
Also helpful are “goals-based communication” and providing education as well as, when needed, deterrence.
“Clients don’t often throw around terms like ‘behavioral coaching,’” according to Labotka. “However, even without using the terminology, many clients identified key components of behavioral coaching in their rationale for keeping their advisor, like scaffolding decision-making. Clients want to feel confident in the decisions they make, but they may not ask directly for the behavioral coaching they need to get there.”
“A good place to start is by acting as a financial educator to clients and helping them prepare for times of stress, when making good decisions can be even harder than normal,” she wrote.
In a separate 2024 wealth management outlook, Deloitte also found a positive client experience is driven by “genuine consideration and application of client preferences and feedback,” as well as timely and clear communication, and a long-term approach “as opposed to short-term customer acquisition strategies and upselling.”
“Although investment performance is an important factor that can help drive customer satisfaction, customers’ expectations have generally grown in terms of personalization and timeliness of interactions,” Deloitte noted.
