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Understanding and Communicating an Advisor’s Value

Advisor Perspectives

By Scott MacKillop | August 22, 2023

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“The oldest and strongest emotion of mankind is fear, and the oldest and strongest kind of fear is fear of the unknown.” —H. P. Lovecraft (1927) The studies have it wrong There are two types of studies that explore the value that advisors provide to their clients. The first examines the various tasks an advisor ... Read More

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“The oldest and strongest emotion of mankind is fear, and the oldest and strongest kind of fear is fear of the unknown.”

—H. P. Lovecraft (1927)

The studies have it wrong

There are two types of studies that explore the value that advisors provide to their clients. The first examines the various tasks an advisor performs, such as asset allocation, rebalancing, and investment selection, and attempts to quantify the value of each of them.

The second asks investors about the qualities they most value in an advisor. This is often done by having the investors rank a predetermined list of advisor attributes such as “helps me reach my goals,” “is easy to get a hold of,” and “has the relevant skills.”

The results of these studies are often inconsistent with one another, but they do provide some useful information. The quantification studies offer directional help in understanding which of an advisor’s activities contribute the most to an investor’s financial success. The qualitative studies provide a glimpse into the characteristics that investors most value in their advisors.

Remarkably, these studies miss the most fundamental reason investors hire advisors: They are fearful and anxious about their finances and investments.

They are staring down a long, dark tunnel into an uncertain future. They can neither clearly picture what their lives will look like years from now, nor fathom how they will find peace and security in a future world once they arrive. They are desperately seeking a guide.

How our brains are wired

Our brains are prediction machines. They continuously anticipate the future so we can prepare for and deal with the obstacles we must overcome. This process is essential to our survival.

By drawing upon our experiences and knowledge of our environment to project future possibilities, we are better positioned to ensure desirable outcomes and avoid adversity. Our brains err on the side of caution and give more weight to negative information – our so-called “negativity bias.” This makes evolutionary sense. Good news is rarely dangerous, while bad news often is.

When our brains are deprived of sufficient information about the future to make accurate predictions, we experience stress. In fact, the research tells us that the “fear of the unknown may be a, or possibly the, fundamental fear underlying anxiety and therein neuroticism.”

This helps explain our collective appetite for predictions by gurus despite their poor record of accuracy. Their predictions, quite literally, reduce our fear of the unknown (FOTU) by giving us a false sense that we are better equipped to deal with future events than we really are.

Not everyone experiences FOTU-based anxiety at the same level. Some tolerate it well, while others are “allergic to uncertainty.” But wherever we fall on the tolerance of uncertainty spectrum, life feels more dangerous in the absence of a clear mental picture of what lies ahead.

How clients come to you

The Robert Burns poem, To a Mouse, contains the lines:

The best laid schemes o’ Mice an’ Men gang aft agley,

An’ lea’e us nought but grief an’ pain, for promis’d joy!

We may not be familiar with the Scottish dialect in which Burns wrote, but we are all familiar with the concept that even our best laid plans often fall through and leave us suffering.

Most people don’t have a plan for their lives. They may have a jumble of hopes and desires for the future that they could recite if pressed, but it wouldn’t rise to the level of a plan. They are quite aware that beyond the immediate future, any plans they do have are frail beasts.

In the Doors classic, “Roadhouse Blues,” Jim Morrison sings: “The future’s uncertain and the end is always near.” But how near is it? We have a tidy term for it – longevity risk. But this sanitary label conceals the befuddling nature of this problem. What is my target?

When investors read the headlines, they see a chaotic world: crime, discord, wars, pandemics, economic surprises, and existential threats like climate change and nuclear holocaust. Change is everywhere and its pace is accelerating. Pundits are squawking boisterously on all sides of every issue.

When clients look at the financial markets they are baffled and confounded by the turmoil. Bears. Bulls. A tsunami of jargon. No clear patterns or rules that hold. Ponzis and pitchmen. SPACs, meme stocks, and snake oil. Hollow predictions with no accountability.

Is it any wonder investors shudder when they face the future and wonder what to do with their hard-earned nest egg?

How they see you

You will never have a potential client walk through the door and remark: “I have a bad case of FOTU and I need you to help me paint a clearer picture of what the future looks like for me and my family and how we will exist comfortably in that world.”

Everyone is so used to living with uncertainty, potential clients are unaware that it is a source of angst. It’s like the dull hum of traffic in the city – they don’t even hear it after a while.

Even if they were aware of it, like all of us, they’ve learned not to show their feelings, at least at first. Stiff upper lip and all that. Especially around strangers. And even if the client is a referral, you are indeed a stranger and must earn their trust before they will open up.

Moreover, investors have been conditioned to view advisors as craftspeople who have a set of skills related to the creation and management of wealth. They see us as financial cobblers. We have all participated in creating this impression by “geeking out” about the technical aspects of investing and the fintech tools we use to create portfolios.

As a result, potential clients don’t consciously see you as a financial physician (thank you, Meir Statman, for that term) who can lower anxiety and increase peace of mind by reducing uncertainty about the future. It would never occur to them to think of you primarily as a source of clarity and reassurance about their future wellbeing.

But that’s precisely what you are or could be.

What this means for you

If you take to heart the quantitative studies referenced above, you would fill your website and marketing materials with references to asset allocation, rebalancing, and investment selection. You would assume that potential clients are shopping for those things like bread and milk at the grocery store, because each one has a quantifiable value.

But they are not.

No more than a patient who needs heart surgery would select a surgeon based on their description of where they will make the incisions, what they will do when they get inside the chest cavity, and how they will suture up the wound.

The patient might ask about these things after they make their decision to work with the surgeon. But the decision will be made based on the patient’s belief that the surgeon understands the client’s specific problem and has the skill, knowledge, and experience to fix it.

Or, if you are swayed by the qualitative studies I referenced, you might take a different approach. You would tailor your messaging to track the laundry list of characteristics that clients ranked highest in those studies – in effect, mirroring their rankings back to them.

Doing this will put you in the same category as the large corporation whose tagline is: “We care.” Anybody can say that they help clients reach their goals, are easy to get a hold of and have the relevant skills. These statements are not believable when you say them about yourself. You must do and be those things for them to be believable. This takes time.

Instead, start thinking about yourself as a financial physician rather than a financial cobbler. Communicate your understanding of the client’s underlying issues and concerns in terms that the client can understand. Then explain how you will address them.

A message to clients

Position your messages to clients this way:

  • We understand that you have a unique set of hopes and aspirations for the future.
  • We also know you have unique concerns about how you will achieve financial well-being for yourself and your loved ones and constraints that will impact the way it is achieved.
  • We start by asking questions and listening, so we can discover the unique aspects of your situation and lay a solid foundation for success.
  • Then we engage in a conversation with you to establish specific goals that will provide direction and clarity to our efforts.
  • We will revisit these goals with you periodically and adjust them as needed.
  • We will use these goals to develop a financial plan that serves as your roadmap and provides a basis for accountability. This allows us to clearly measure progress each step along the way.
  • Your financial plan will also be used as the basis for developing a portfolio designed to achieve your unique goals within the constraints of your personal situation.
  • We will monitor progress over time and provide written reports periodically so you aways know where you stand.
  • We recognize that investing in the financial markets can be challenging, especially during times of market turmoil. Learning how to navigate these difficult times is key to achieving your goals.
  • For this reason, we encourage each client to participate in our educational programs.
  • These programs will increase your understanding of the markets, reduce your anxieties, and improve the likelihood you will reach your personal goals. We recommend you consider them.
  • We are always available if you have questions, and we will schedule meetings along the way to make sure you are informed and are in tune with your changing needs.
  • You are not alone on this journey. We will help you organize and bring clarity to your financial life. We understand the importance of this undertaking and will stand by you along the way.

Make the message yours

Maybe these messages can provide some inspiration. The goal is to stop talking about yourself and start addressing the fear clients have about providing for themselves and their families as they face the uncertainty of what the future holds.

Help clients see a path forward with you as their experienced guide. Be a financial physician with a reassuring presence who can reduce anxiety, bring clarity, and induce confidence. The world needs cobblers, but keep them in the backroom while you meet your clients where they are.