Emotional rather than financial decisions are the major reasons why people prefer to see a financial adviser, but research from Morningstar has found there needs to be nuance with how that is articulated.
The ‘Why do people hire their financial advisors?’ report from Morningstar in the US found 60 per cent of clients cited an emotional reason for hiring their adviser as opposed to 40 per cent who attributed it to a financial reason.
The report posited that although financial issues are a common driver of client hiring decisions, there is an “additional thread” of emotional drivers.
The findings came as a surprise to Morningstar behavioural scientist and report co-author Danielle Labotka who tells Professional Planner that the research team didn’t expect emotional factors to be the driver for a majority of people.
“What is commonly heard is that [clients will meet with] advisers because they have a specific financial issue that needs to be resolved, but what we see is that a lot of the times investors are coming to advisers because they don’t have the tools to do these things on their own,” she says.
Labotka adds that clients and investors approach advisers because they feel they cannot make financial decisions on their own.
“[This is] encouraging, because it means that people aren’t [necessarily] approaching advisers as some sort of way to get rich quick,” she says.
Morningstar global head of behavioural insights Ryan Murphy says clients and investors want to receive behavioural coaching, but advisers must be careful with how this value is articulated.
“What’s interesting is when you ask people what they’re looking for in a financial adviser, they almost never use that phrase [behavioural coaching], but it highlights the kind of emotional discomfort people have in facing financial issues and decisions,” Murphy says.
But he believes it is crucial for advisers to know behavioural coaching presents a substantial opportunity for them and their clients.
“Clients are going to be receptive to it,” he says.
The research suggested colloquial language, providing examples, and clarifying that issues clients face aren’t unique may help clients feel more comfortable about the concept.
The subtle art of advising
Handling financial needs is direct but addressing emotional needs “must be done in a tactful and subtle way”, according to the report. This means “asking the right questions and listening”, Murphy says.
“It’s about helping clients begin to express what they’re trying to achieve. What advisers can do is be a little bit patient with this process, because sometimes initial statements don’t truly reflect clients’ actual long-term objectives. It takes time to get to that.”
Morningstar has previously found that client and adviser expectations are not always aligned, according to Labotka, which is why they elected to undertake the study.
“[The] study is actually part of a series of studies where we are trying to get a better understanding of what clients are looking for in there advisers and what leads to long lasting and successful relationships,” Labotka says.
“We are also in the process of working on the next study, which actually looks at why clients decided to keep their adviser.”
Human advisers prevail
While AI could play a significant role in streamlining the financial advice process, research from Neilson & Co Wealth managing director Ben Neilson found that AI tools like ChatGPT will complement professionals rather than replace them.
Labotka believes the rise of technology, artificial intelligence, and robo-advisers “highlights the importance of those human things that advisers do that machines can’t”.
“We see in [the research] that those human things, those emotional aspects, are things that clients are really looking for. This is a strength that human advisers have that is not going to be supplanted by new technologies in any meaningful capacity in the near future.”
Labotka adds advisers are already conscious that one of their most vital contributions lies in their capacity to view and treat their clients as human beings.
“This ability to focus on the human side of personal finance is something that advisers can bring to the table while they help their clients achieve their financial goals,” Labotka says.
I find it interesting that “the research team didn’t expect emotional factors to be the driver for a majority of people”. My experience (as per the balance of the article), is that it’s the #1 driver assuming financial competence/experience/skills in the adviser has been established.