Technological advances and evolving regulations are changing the financial advisory landscape, making it more important than ever for professional financial advisors to prove their value to their clients.
Investors increasingly seek investments with low costs and low fees. About 65% of advisors now recommend exchange-traded funds (ETFs) to their clients. But those clients still value high-quality advice on a range of issues related to investing and personal finance.
- A client's trust in the financial advisor is as important as financial performance.
- Personal attention is key. Clients must know that the advisor is looking out for their financial interests.
- Small things matter. An overlooked email or phone call can break the relationship.
The Importance of Client Relationship
A report by Vanguard highlights the importance of relationship management in attracting and retaining clients in a shifting advisory space. Whether the advisor is a one-person firm, a representative of a large corporation, or a robo-advisor for an online broker, a satisfied client sticks with the financial advisor through the years and refers others for advice.
“The pressure is on for advisors to show their value outside of traditional portfolio management,” says Billy Lanter, fiduciary investment advisor at American Trust in Lexington, Kentucky. “The superior experience clients are willing to pay for is a personal relationship with an advisor who not only understands their goals but is managing their portfolio in accordance with those goals.”
At the core of this approach is a simple factor: trust.
As every advisor knows, referrals are critical for growing a client base. More than half of the clients surveyed by Vanguard found their current advisor through a referral. The same report found that 94% of investors were likely to make a referral when they "highly trusted" their advisor.
Clients with high levels of trust were also more than twice as likely to offer a referral, compared to those who said they only had a moderate amount of trust in their advisors.
Why Trust Matters
Client trust is multifaceted. Vanguard found that clients were more likely to trust their advisors when they believed that their functional, emotional, and ethical needs were being met. Specifically, clients were more likely to trust an advisor who did what they said they were going to, acted in the client’s best interests, and made decisions that allowed the client to sleep well at night.
Lanter says clients develop opinions early in their relationship with an advisor: “A phone call or email that goes unreturned can do significant damage.”
According to Lanter, advisors illustrate how they act in their clients’ best interests in a tangible way. “Ethical trust is like a sixth sense—clients usually know when something doesn’t feel right.” He advocates embracing a fiduciary relationship and not shying away from difficult conversations when necessary.
How to Measure Client Trust
Money Matters Are Stressful
Emotional trust is the most impactful of the three but also the most difficult to capture, says Lanter. He says building a rapport and being proactive during times of market volatility are tremendously impactful. “Client fears are eased when they know you understand their goals, you’re managing their portfolio according to those goals and you can show them that everything is on track.”
Nick Holeman, certified financial planner and financial planning expert at Betterment, says transparency is critical for supporting these pillars of trust. “Lack of clarity and lack of transparency prevents clients from ever fully trusting that an advisor has their best interest in mind,” he says.
Online financial advisors are often able to convey information clearly through digital interfaces. Advisors who meet their clients in person need to be more careful to be clear when working with clients in person.
The number of financial advisors working in the U.S. as of May 2021, according to the Bureau of Labor Statistics.
Cultivating Client Trust
In order for advisors to nurture and deepen their client relationships, it's essential that they understand the foundation on which trust is built. According to Vanguard, advisors should focus on educating clients, managing their own time efficiently, framing their advice with clients’ goals in mind, and communicating effectively.
“Good communication requires that advisors do more listening than talking,” says Mike Costa, vice president of Fiduciary Trust Company in Boston, Massachusetts. “Advisors who are effective listeners can better identify their clients’ goals and concerns and develop planning and investment solutions tailored to each client’s unique situation.”
That means dialing down the white noise and focusing on the client, not necessarily what the markets are doing at any given moment in time, says Lou Cannataro, partner, Cannataro Family Capital Partners in New York City. He says clients only begin to care what you know when they realize that you’re tuned in to what they need and want. “This is when true communication begins.”
Making Time for Clients
Time management is just as critical. Vanguard found that reducing the amount of time spent on research and administrative tasks could provide more value-added client opportunities for advisors.
“Advisors should focus on the tasks that are most important to achieving clients’ goals, delivering client value, and strengthening the client relationship,” Costa says. Translating an understanding of the client’s personal situation, goals, and objectives into an agreed-upon comprehensive plan means “advisors can better align with clients’ interests and focus their time and activities on the key tasks to achieve those plans.”
Holeman advocates tracking how you spend your time, then using that data to uncover inefficiencies in your routine. If your time is best spent on relationship management or prospecting versus back-end office tasks, for example, he suggests outsourcing as much of that work as possible.
Creating a service calendar can also be helpful, says Lanter. This means discussing how often clients would like to meet and what topics they want to cover each time you connect. “An intentional approach to client meetings can keep both you and the client focused on the things that are most important to them.”
How Can a Financial Advisor Attract and Keep Clients?
People choose a financial advisor the same way they choose a doctor or a lawyer. First, they may ask for recommendations from friends and family. Then they may check credentials. Then they may meet with several candidates before making a decision.
Your most important job at the first meeting is to listen to the client and to reply thoughtfully about the services you can provide. They need to feel comfortable talking to you about their personal financial circumstances and goals.
Once they've chosen you, it's time to get to work for them.
Remember, this is a two-way street. Some clients may feel you're not the best advisor for them and vice versa. If your expertise and client base are made up mostly of professionals nearing retirement, you might refer the youngest candidates to someone that specializes in their financial priorities.
What Makes a Good Financial Advisor?
Good financial advisors have a client base that is appropriate for their experience and expertise whether those clients are young professionals just starting to build wealth, older couples planning for retirement, or heirs to a substantial fortune.
Financial advisors tend to specialize. They may be particularly adept at handling the financial affairs of women, military veterans, very wealthy people, or teachers. As a financial advisor, you should consider what kind of client you want to attract and keep.
How Do I Build Trust in My Financial Advisory Services?
Clients were more likely to trust an advisor who did what they said they were going to, always acted in the client’s best interests, and made decisions that allowed the client to sleep well at night, according to a Vanguard study.
Courtesy matters. Always return calls or emails from clients in a timely fashion.
The Bottom Line
Fostering trust requires an initial investment of time. But advisors can reap substantial returns on that investment if it leads to higher client retention and referral rates.
Consistency is vital, Cannataro says. “You have to continually earn the honor and privilege to work with your client by never faltering in delivering what you’ve promised and have been providing.”