Advisers of the future will need to focus less on outperformance and more on the relationships they have with their clients, said Vanguard head of portfolio construction Francis Kinniry.
Speaking at Vanguard’s annual roadshow in Sydney this week, Kinniry explained that as providers become better at using technology and more tasks become automated, advisers will be forced to move up the value chain.
“When I moved into the advice industry 25 years ago, the emphasis was on portfolios – we had portfolios with people behind them,” he said. “Now we believe it’s actually flipping and we’ll spend our time with the people, because the portfolios can largely be automated or outsourced.”
As “basic and repetitive” tasks become increasingly automated, value will present in “advanced” offerings such as maintaining relationships, persuading clients, strategising, and judging quality. Kinniry projects that while these advanced tasks comprised 30 per cent of work in 2000, and 50 per cent in 2015, the figure will reach 80 per cent in the future.
For advisers, that means building trust with their clients will take precedence.
“Behavioural coaching, for example, takes time and trust,” Kinniry explains. “It takes a deep relationship and a certain level of trust to be able to convince someone to appropriately rebalance their portfolio.”
He used the example of his brother, who is a specialist in internal medicine in the US, an educator and “one of the smartest people I know”, but a less-than-savvy investor.
“I’m not sure my brother would go ahead and rebalance his portfolio if he received a text alert,” Kinniry said. “He is probably going to want to talk to the [adviser] he’s lived through a couple of cycles with, and work through why he should stay the course.”
Developing this kind of trust, Kinniry explains, is a multifaceted process involving functional, emotional and ethical factors, but not in equal measures; tapping into the emotional needs of clients dominates the process, and is a major part of an adviser’s journey up the value chain.
“Trust can be very different to different people,” he said. “The most important component is emotion, because it allows them to sleep better at night. If the wealth is causing anxiety, or stress, it’s not a good thing.”
*Source: Vanguard, Chadwick Martin Bailey
Advisers also need to be aware that when it comes to client relationships, communication is paramount, Kinniry said. A Vanguard/Spectrem survey has shown that while only 36 per cent of clients would change advisers due to ‘underperformance compared with the market’, 61 per cent would do so for ‘not returning phone calls in a timely manner’.
While clients will probably forgive an adviser for a poor return, Kinniry said, “they expect a phone call to be returned within 24 hours”.
