Advisors who focus on transactions rather than comprehensive financial planning hurt their own long-term growth and even the number of referrals they receive, said an executive at consumer analytics company J.D. Power.
Speaking at a panel discussion at the Financial Services Institute’s OneVoice conference this week, Tom Rieman, a J.D. Power senior director and head of wealth solutions, pointed to a study by the firm that surveyed 4,396 investors who work directly with an advisor or team of advisors. The firm found that just 14% of the investors received comprehensive advice from their primary financial advisor.
In contrast, 43% got advice based in transactions and 43% received “goals-based advice,” which is still not the optimal type of advisory relationship clients want, Rieman said. The vast majority of transactional advisors came up through the brokerage industry and many are hybrid broker-advisors who still maintain their securities license.
Rieman spoke during an FSI presentation entitled “Evolution from Money Manager to Holistic Practice.”
“There is a clear disconnect between what the majority of advisors think clients want and what they actually want,” he added.
Advisors who provide comprehensive planning, according to J.D. Power, consistently make recommendations in a client’s best interest, understand their goals and needs, always create a financial plan and ensure that clients understand fees.
That contrasts with advisors who provide siloed transactional advice and no financial plan, and who often have conflicts and rarely ensure that their clients understand fees.
The advisors who offer what he referred to as “goals-based” advice still don’t check all the boxes as those who offer comprehensive planning, he added. And if advisors don’t do the latter, they will find it harder to justify fees, Rieman said.
Advisors focusing on transactions are also much less likely to get client referrals, Reiman said. In fact, their clients only give them a score of 40 when it comes to rating the likelihood they’ll give them a referral, J.D. Power research found. In comparison, advisors who provide goals-based advice get a referral score of 60, while those who provide comprehensive advice get the highest referral score, 93.
“In the past clients could judge advisors on investment performance,” said panelist Corey Brodsky, the director of practice management at American Portfolios. “They didn’t have anything else to benchmark. Now investors are starting to judge on service levels and personalization.”
“Most of my career was spent recommending the right investments; over the past decade that’s changed, driven by the client and what they feel is important to them,” Brodsky added.
Panelist Chris Gies of Capital Group said that it’s because many advisors now have access to the same investment platforms—so the question of why one advisor gets chosen over another comes down to different traits than those considered before.
While the industry works to teach advisors more comprehensive-style financial planning, Brodsky said success will depend on advisors’ demographics, success level and what type of practice they have.
But Rieman pushed back on the idea that incremental changes will work. “We can’t be here five years from now” with only 14% of advisors offering comprehensive planning, he warned.
“If we’re trying to transform incrementally, we’ll fail. Let’s instead take the next generation and teach them how to replicate a comprehensive planning experience. We’re not teaching them to sell, but to advise,” Reiman said.