Expanding Advice Value Proposition—Go Beyond Portfolio Performance to Earn Client’s Trust

Modern day clients demanding holistic advice

In today’s environment clients increasingly adopt a broader perspective of advisors’ expertise. This opens an opportunity for those advisors keen on building a resounding value proposition that will both withstand—and stand out from—intense competition and willing to move beyond answering basic questions, such as ”How is my portfolio doing today?” or “what is the hot investment tip of the day?”.

Rather, future successful advice offers will address an ever-widening array of household needs, from pre- and in-retirement planning; estate and insurance services; healthcare planning; business and family succession issues; income, debt and tax management; and education planning. In short, clients will look to their trusted advisors for guidance and execution of multifold short- and long-term needs, covering both sides of their balance sheet, including nonfinancial assets (such as real estate), and often involving adjacent lifestyle needs. In the latter vein, advisors report that more clients are asking for their advice about managing financial family relationships or developing a lifestyle plan for retirement. This is indeed a far cry from the original concept of financial advice-giving revolving around investing and portfolio performance.

Thus, today’s clients want holistic advice and planning that integrates wealth management into their lifestyles and preferences. They also want products and services that extend beyond investment management to real estate, commodities, taxation, and more. Moreover, they want all these offerings to be integrated into one platform. Advisors are entrusted with managing their clients’ life savings and investments to help them achieve long-term financial goals, but also increasingly called to help clients secure financial and lifestyle wellness.

In wealth management, cultivating “client first” service mindset is the only way for establishing a long-lasting advisor-client relationship. At the core of this long-lasting advisor-client relationship is earning client’s trust.

Make no mistake, a loyal client is one of advisor’s most valuable asset

As any professional advisor would know, referrals are critical for growing a client base. Referrals are typically the most important source of business for financial advisors and building trust is a pathway to generating referrals spontaneously. Trust is also related to client retention. Advised investors who trust their advisors are less likely to think about switching them. Client trust is multifaceted, and trust multiplies. The association of trust with client loyalty and retention illustrates why building client’s trust should matter for financial advisors.

Providing holistic advice at scale may need technology interventions

Delivering holistic financial advice poses some challenges for wealth managers and advisors—and for their dealer platforms. A comprehensive financial plan at scale needs 360-degree understanding of the client’s financial relationships, a good process for understanding their family structure, data-driven insights at their fingertips, expertise in all products and integrated platform offering. One way to counter these challenges is to leverage technology platforms to eliminate data silos. Technological advances are changing the financial advisory landscape, making it more important than ever for professional financial advisors to prove their value proposition to their clients.

People don’t care how much you know, until they know how much you care

Experts in behavioral finance call it salience: The motivational magic that is sparked when a piece of information has immediate relevance to the client’s situation or expectations. In a nutshell, it is the soft skills that will help advisor-client relationships thrive. Through this personal and bespoke engagement advisors can establish trust, ensure transparency in client conversations, and stay “always on”—or continuously engaged with their client through technology interventions.

When it comes to advice, quality of client relationships is the key differentiator

To be sure, expertise is an essential element of the success formula. Competence and trust are inseparable elements of a successful advisor-client relationship. Clients trust advisors who possess the necessary competence and expertise to guide them through their financial journey—and beyond. Advisors who stay up to date with industry knowledge, regulations, and market trends, and who continually enhance their skills and expertise, can instill confidence in their clients and reinforce their trustworthiness.
Advisors with industry tenure have likely encountered various market conditions, economic cycles, and client scenarios. This experience equips them with the ability to anticipate challenges, identify opportunities, and provide practical advice. A track record of positive client outcomes can instill confidence in an advisor’s expertise.

Does advisor’s competence alone suffice to build long lasting beneficial client relationship?

Advisors need to become the central nervous system for their clients’ well-being. In healthcare, you care about the quality of the hospital, but it’s usually the engagement with your doctor and the staff that determines your satisfaction. It’s no different in wealth management.

Financial advisors can learn a lot from leading consumer brands like “Nike”. An example below illuminates how Nike combined customer centricity and brand reputation to earn customer trust.

In 2017, Nike introduced the Triple Double Strategy—promising to double its “cadence and impact of innovation,” double its “speed to market” and double its “direct connections with consumers.” Nike doubled down on the Nike Customer Experience (NCX) as a way to create more personal connections with customers. To make a strong customer experience a reality, Nike invested heavily in front-line agents as part of its marketing team.

The strategy rests on Nike going “big picture” and “small scale” at the same time. Today, on one hand, Nike is functioning as a one-stop shop for its target customers (through training and workout recommendations in addition to apparel and footwear). On the other hand, the company is leveraging people, process and technology to create special, personal connections with customers.

To put it in simple words, Nike doesn’t just sell products, it tells customers what they want—and then makes that value as readily available. The key is Nike’s ability to cultivate customer trust. Between its brand legacy, its knowledgeable team and its commitment to the entire athletic experience, Nike proves it knows athletes. With personalized recommendations, it then proves it knows individual customers.

Nike believes building and retaining customer trust comprises two intertwined capabilities: the intent to act in the customer’s best interest and the competence to do so.

Facts don’t persuade and data alone does not prompt change

Data and dashboards typically focus on gain: How clients’ assets grow, and how quickly, under advisors’ guidance. Financial literacy programs serve up plenty of data, but it’s up to clients to convert what they have learnt into action. Most advisors are great at analysis and logic, but that rarely translates cleanly to compelling client conversations.

Modern-day investors demand more than one-dimensional updates on the state of the market and portfolio performance. The world has changed, and so have investors. And what clients are looking for now is much more than a bar graph or a spreadsheet can provide.

Lack of holistic personalized advice allows market volatility to dictate client satisfaction

If data alone is not sufficient to deploy a winning advice value proposition, what will move the needle?

For 18 consecutive years, the Canada Full-Service Investor Satisfaction Study has assessed the satisfaction level among investors with full service investment firms. The study evaluates investor satisfaction across seven key factors, ranked in order of importance: trust, people, products and services, value for fees, ability to manage wealth according to personal preferences, problem resolution, and digital channels.

To gather data for the study, the researchers collected feedback from 4,803 investors who actively engaged with a dedicated financial advisor or a team of advisors. The study spanned from October 2022 to January 2023, enabling a comprehensive analysis of investor sentiments during that period.

This study suggests that only a fraction of investors receive holistic advice, showing that only 6% of investors in Canada are receiving a comprehensive level of service and advice from their wealth management professionals. Investors who receive comprehensive advice from their financial advisors are more than three times as likely as those who receive transactional advice to recommend their financial advisor to friends or family.¹

Earning client’s trust and monetary benefit for advisors – any connect?

As per investor satisfaction study conducted by Investor Economics in Full service brokerage (FSB) channel, results showed that an investor’s share of total investments (%TI) with the FSB firm is higher if the firm does their financial planning and the investor uses the firm’s advisory services, whereas their %TI is lower if they seek financial planning and advisory services elsewhere (see Figure 2).

The data proves that the advisor’s ability to penetrate the wallet of existing customers is directly linked to establishing a trusted and holistic financial relationship with the said customer. In particular, inclusion of such activities, such as financial planning or insurance/estate planning, which might require both specific advisor competencies and advisors’ ability to leverage the dealer and asset management/insurance partner resources, and which might not directly translate into a specific investment sale, over time delivers new business to advisors via more precise client discovery and the amplification of the “trust factor”.

At the other end of the spectrum is the clear retention challenge, described earlier in the article, for those advisors who do not properly “moat” their client relationships through a broadly-based offering and develop the associated trust factor. Letting others deliver services such as financial or estate planning to your advisors leads to measurable leakage of the share of the client’s financial wallet, as demonstrated in the chart. This gap can be significant and range from a downdraft of nearly 20% in the share of wallet for clients for whom financial plans are prepared by other advisors/firms, to a full 30% for those whose estate plan is handled by someone else. For advisors with $100 million+ books of business, such missed opportunities within the existing book of business may well translate into a significant danger of client and asset defection and unrealized growth opportunity.

As per Fidelity eMoney survey of 5,400 customers in 2019, 56% of the investors would be willing to pay more if their advisors laid out a roadmap and developed a holistic plan meeting their life goals and financial needs.²

As per this survey, 56% of investors would like their financial advisor to provide comprehensive services. 45% of investors also indicated they would like to consolidate more assets with their primary advisor. Advisors also realize qualitative and economic benefits of providing holistic financial advice to their clients.

Providing holistic trusted advice at scale needs technology interventions

As per recent survey undertaken in May’23 by ISS Market Intelligence team as part of the ongoing Selling Retail Investment Products Through Intermediaries research effort, measured advisor interest in financial technology tools provided by asset managers, home offices, and third-party sources.

The survey finds that more than 95 percent of responding advisors report using fintech tools for trading and clearing, portfolio rebalancing, and/or investment analytics. Trading and clearing were decidedly the most popular uses of fintech among surveyed advisors. By contrast, investment analytics proved a more competitive area for managers and third-party firms alike, with 26 percent of reporting advisors using asset manager software and 41 percent using third-party software for this purpose. Asset managers saw high uptake of their software in direct indexing and portfolio construction, with 24 percent and 29 percent of advisors, respectively, using asset manager-provided software for these functions.³

With so many doctors, investors get all but holistic advice

The presence of multiple vendors and firms catering to the financial needs of a single client makes it difficult for advisors to give holistic advice to a client about his or her portfolio. An analogy would be going to a doctor for medical advice regarding one’s overall state of health and then sharing information about only one part of the body. If you need advice on the whole, you must present the whole body!

From the very first touchpoint, data must be captured and maintained effectively, to fuel data-driven insights and ensure successful client relationships. Investments of most retail investors are scattered all over the place—at different banks, brokers, insurance companies and so on. Most investors struggle to get a single view of all their investments—never mind their entire financial lives—through a single platform.

One way to counter this is to have technology in place to eliminate data silos and connect systems and processes together.

As many global organizations, RBC Wealth Management also faced the challenge of scattered data. RBC had begun working on its digital onboarding platform in late 2019 with the goal of launching in late 2020. The pandemic accelerated this timeline, and it was rolled out earlier in May 2020 as the pandemic restrictions closed branches. By using MuleSoft and Salesforce Financial Services Cloud, RBC connected all their systems to establish a 360-degree view, significantly reducing the time spent by the advisors and their staff to collect and store client information.

Can account aggregators (AA) framework introduced solve data silos?

In India, the Account Aggregator framework aims to bring banks, insurers, registrar and transfer agents (RTAs), depositories—all regulated financial entities—onto a single platform to allow seamless sharing of financial data of investors after getting their consent.

The AA ecosystem eases concerns related to data silos by allowing traditional and online advisors alike to let their users access all investments in one platform. Additionally, advisors can process the data and derive actionable insights from investors’ portfolios with their explicit consent.

See below for an illustrative example of how such an Account Aggregator framework could work.

Frequent client engagement at scale can be time consuming

There are a number of conflicting perspectives about what makes financial advisors successful. Some advocate organizing in teams, others prefer working as an individual. Some advisors anchor their practice in doing financial plans for clients, while others opt for a more transactional focus. However, there is one clear way not to be successful—not engaging with your client.

Engaging with clients entails having frequent, relevant, and trustworthy communications with them. But communicating frequently and ensuring relevance have historically been time-consuming for financial advisors.

One way to resolve this would be to build a tailored and automated insights platform for the advisors. In this way the advisor would be able to engage with majority of its clients and hopefully create a competitive advantage in the process.

In 2018, Morgan Stanley rolled out a new capability to its financial advisors to aid them in their work with clients. Called Next Best Action (NBA), the system is both a platform for personalized communication and engagement with clients, and an AI-based recommendation engine for investment and wealth management ideas that financial advisors can present to their clients. The NBA system, if used correctly, has the potential to significantly change the way financial advisors work with their clients.

Advisors use NBA in different ways, sending routine communications—such as birthday greetings or holiday messages, as well as highly personalized content. For example, if there is a major stock market decline, the automatically-generated message can include the specific impact on the client’s portfolio. The NBA system can also recommend a set of investment ideas that financial advisors can send to clients—so-called “ideas to engage,” with clients.

Though technology interventions could eliminate data silos and assist advisors in client engagement, across domains, it’s debatable whether technologies can replace humans in the near future?

Clients with more complex needs may still want to connect with a advisors who understands their specific requirements. As a result, it is critical for advisors to build personalized service capabilities and thus deepen their relationships with clients to enhance their value proposition.