While there has always been “something of a disparity”
between investors’ expectations and how advisors interpret what is expected of
them, this gap has been exacerbated amid the recent financial turmoil, says
HNW, Inc. chief executive, Stacey Haefele.

A recent study by
Charles Schwab Advisor Services outlined that almost three out of five
independent advisors (59 per cent) anticipate difficulties in attaining their
clients’ goals - a figure which was considerably lower among investors, at 32
per cent.

Previously, when advisors and clients have been asked to
state what they value most from their primary advisor - portfolio performance
or the quality of the relationship - most clients will value the former, while
advisors, on the other hand, tend to overemphasize the value of the latter,
Haefele told this publication in a recent interview. HNW, Inc. is a US marketing
firm serving financial businesses.

“In other words, they [advisors] tend to believe the client
is going to value the relationship more than the performance of their
investments, something that is measured, in part, by the proactive frequency of
the communication and the quality of dialogue,” she said.

But why would advisors think that portfolio performance
could be less important to clients? “Probably because it’s something they feel
– maybe rightly so – that they’re less in a position to control. Therefore they
– perhaps subconsciously – overweight the thing the can control: the
relationship.”

The global financial crisis has undoubtedly affected in
numerous ways investor behaviour, simultaneously altering the way in which
clients communicate with their advisors. “It’s not surprising to me that
advisors will feel that meeting clients’ expectations is going to be harder –
especially in markets such as these” says Haefele, remarking that the size of
the gap is, however, “a little surprising.”

Interestingly, though, referring back to Schwab’s findings,
where investors did perceive barriers to achieving their goals, they singled
out the broader investment environment, as opposed to the advisor
specifically. 

“Advisors are right to point out that the concerns and
expectations of clients – across the board – have intensified over the last few
years, both with respect to performance and the clarity and frequency of
communication surrounding it,” Haefele says. “If we’ve learnt anything about
what clients value and frankly require, it’s transparency, honesty and
proactive, direct outreach. Without these, there can be no trust.”

Addressing both sides
of the coin

The ups and downs of markets, currencies and general
political and economic anguish over the past few years have given investors a
“real dose of reality.”

“They now realize…that maybe it’s unfair to expect too much
from any one advisor, and that they have to take a lot of responsibility
themselves, and I think also, in some cases, people are also just a bit jaded.”

Haefele believes there is still “a lot of money on the
sidelines” in the US,
as investors are reluctant to pump money back into markets that don’t trust.
But while advisors and clients have “never really been 100 per cent in
agreement,” advisors find themselves in a particularly tough position.

While they, she explains, may be more sceptical in their
ability to achieve clients’ performance objectives in uncertain economic times,
this is intensified if clients remain unwilling to put money into the markets
and undertake responsible levels of risk in their portfolio allocation. “It’s a
very tricky dynamic.”

More women climb the
ranks of the wealthy 

With so much focus geared toward the significant of
communication - particularly in terms of how advisors interpret their clients’
perceptions, it is interesting to note that the Independent Advisor Outlook
study by Schwab revealed that women contribute to decision-making in finances
nearly 60 per cent of the time, either independently (21 per cent), or jointly
(38 per cent), and Haefele expects these figures to rise further, advocating
that it is “long overdue.”

“If you ask advisors who called the most [during the most
recent downturn], you get a 50:50 response in terms of proactive outreach from
male and female clients concerned about their portfolio,” she says. Yet digging
a little deeper, the gender stereotype of women being the more emotional and irrational
investors “wasn’t so much the case.”

In fact, Haefele has observed that men emerged as the more irrational/emotional
investors, with “much more amplitude.” They were more angry, she says, and
“much more likely to abandon their plans in the heat of market conditions.”

The importance here, Haefele stresses, is that open lines of
communication are one of the “most correlated factors” steering the ultimate
decision for someone to leave an advisor. However, demographic similarities
shouldn’t matter, she says. “There’s a right advisor for everyone,” but it’s
just a question of being able to relate to one another.