Expectation Versus Delivery: Addressing The Advisor-Client Mismatch

Eliane Chavagnon

21 May 2012

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 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 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 , or jointly , and Haefele expects these figures to rise further, advocating that it is “long overdue.”

“If you ask advisors who called the most , 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.