Do your expectations align with your adviser’s?
In a presentation at the recent annual Morningstar Investment Conference, held in Johannesburg and Cape Town, Ryan Murphy, the head of decision sciences at Morningstar Investment Management, took delegates - many of them financial advisers - through the results of the survey.
“Our research suggests there’s a difference between what investors value from their advisers and what advisers believe investors value, and that disconnect may create problems on both sides of the relationship. For advisers, it’s hard to build a mutually beneficial relationship if clients don’t understand the advice they’re getting. And it can be frustrating for clients if it seems their adviser isn’t meeting their expectations.
“Our results show that expectations around advice aren’t always aligned, but this gap can be bridged by understanding where the differences are and where the value exists in the client-adviser relationship,” Murphy said.
He said that 693 investors were given a list of 15 attributes of a financial adviser (see box), which they had to rank in order of priority.
The same list was sent to advisers, of whom 161 responded. They were required to rank the attributes in the order that they believed investors (their clients) found most valuable.
The investors’ top five were:
1. Helps me reach my financial goals.
2. Has the relevant skills and knowledge.
3. Communicates and explains financial concepts well.
4. Can help me maximise my returns.
5. Has a good reputation and positive reviews.
The advisers’ top five were:
1. Understands me and my unique needs.
2. Helps me reach my financial goals.
3. Keeps my interests in focus with unbiased advice.
4. Communicates and explains financial concepts well.
5. Has the relevant skills and knowledge.
Morningstar’s research showed that advisers and investors were well aligned on the issues of helping the client reach his or her financial goals and communicating financial concepts in a way that the client understands. It was also an accepted requirement on both sides that the adviser had the relevant skills and knowledge.
However, Murphy pointed to three attributes where there was a wide disconnect:
* Can help me maximise my returns (ranked fourth by investors, 14th by advisers).
* Helps me stay in control of my emotions (ranked bottom by investors, 11th by advisers).
* Understands me and my unique needs (ranked seventh by investors, first by advisers).
Murphy said it was concerning that maximising returns was so high on the investors’ list of values, when it was inconsistent with an adviser helping an investor to reach his or her financial goals.
He said it was important for advisers to explain to their clients that there was a difference between the two, and that it is far more important for clients to achieve their financial goals than to strive for the highest returns.
On the question of the adviser helping the client to stay in control of his or her emotions, the study showed that investors underrate the value of behavioural coaching, which the advisory industry has found to be an effective tool in the adviser’s armoury.
Murphy said it was possible that the question was phrased inappropriately. Perhaps a better phrase, he suggested, would have been: “helping protect my portfolios from excessive emotional reactions” - in other words, from panic selling in a market downturn.
The third attribute undervalued by investors, Murphy said, was the personalisation of advice, as encapsulated in the phrase “understanding me and my unique needs”.
Before proffering financial advice, an adviser in South Africa is required by the Financial Advisory and Intermediary Services Act to assess you, taking into account your financial position, personal circumstances, investment horizon, needs and goals. A financial plan that he or she draws up would be tailor-made to best achieve those needs and goals, and any products recommended to you would have to be appropriate to your circumstances.
* Helps me stay in control of my emotions.
* Has a good reputation and positive reviews.
* Is knowledgeable on tax consequences of investing.
* Can help me maximise my returns.
* Is approachable and easy to talk to.
* Helps me reach my financial goals.
* Is easy to get hold of.
* Has a clear fee structure so I know what I’m paying for.
* Understands me and my unique needs.
* Uses up-to-date technology.
* Acts as a coach/mentor to keep me on track.
* Presents him/herself in a professional manner.
* Keeps my interests in focus with unbiased advice.
* Communicates and explains financial concepts well.
* Has the relevant skills and knowledge.
(It may be useful to do this exercise with your adviser - editor)