In a dramatic shift over the last 15 years, financial planners think far more highly of their abilities to understand their clients than their clients do, according to a new Financial Planning Association study.

The report concluded that advisors who do not re-evaluate how they’re getting to know their clients are missing out on one of the most important factors in building client trust and commitment to a long-term relationship.

In addition, planners need a lot more training in identifying and managing client financial anxiety if they want to hold onto clients, as clients who are experiencing financial anxiety are less likely to think their advisor will be able to deliver satisfactory financial services, the study found.

“Developing and Maintaining Client Trust and Commitment in a Rapidly Changing Environment” was the undertaking of the FPA and the Money Quotient Research Consortium, which is a nonprofit research organization, along with the Kansas State University Personal Financial Planning Program. The project was funded by Allianz Life Insurance Company of North America.

The study revisited a set of questions first posed by the FPA in 2006 in an attempt to define what aspects of communication really mattered to the planner-client relationship. That earlier study identified specific components to communication (topics, tasks and skills), as well as the positive and significant correlation those components could have with client trust and commitment.

What came out of the 2006 study was validation that client-centered “life planning,” which was in its infancy at the time, brought significant value to planners and their clients when it came to retention, satisfaction, cooperation, openness to disclosing personal and financial information, and referrals.

But a lot has happened in the last 15 years, the current study pointed out. There are technological advances that added new methods of communication, a series of economic crises that shook Americans’ confidence in their financial security, several recessions, the unexpected shocks and tragedies related to the Covid-19 pandemic, and the rise of social attention to diversity, equity, inclusion and cultural awareness. All of these have taken a toll on the planner-client relationship whether planners are aware of it or not, the study said.

In consideration of these changes, the 2021 study employed all the questions of 2006 but also added new questions in three key areas: virtual communication, client financial anxiety and social issues. The 2021 study maintained the perspective that “good communication is effective in achieving desired ends, connecting needs with resources, resolving problems and issues, and strengthening relationships,” and that an understanding of what goes into an effective effort is found in topics, tasks and skills.

The studies defined topics as the discussion areas that a planner will dive into with a client on both quantitative and qualitative levels.  Between the two, it’s the qualitative aspects of clients’ lives—those needs, priorities and goals—that are harder to pin down but also more critical to a financial plan’s success, the study found. Tasks are the to-do checklist that a planner should go through with a client, such as mutually defining the clients’ personal and financial goals, ordering priorities and collecting all the relevant documents prior to developing a financial plan.

Skills were broken into two areas: facilitative and listening. In 2006, facilitative skills were the ways in which a planner could use nonverbal and verbal communication and spatial arrangement to increase client comfort and openness. In 2021, the study focused on the skill level of planners in the use of video conference technology instead of spatial arrangement.

And in any decade, the ability to listen well remains the most fundamental skill of good communication, the study said.

Among the key findings was that planners and clients have dramatically differing perceptions of the planners’ behavior and engagement.  

“It was a surprise definitely because when we compared it to the 2006 results, planners and clients were much closer in their perceptions,” said Carol Anderson, founder and president of Money Quotient. “Obviously there’s a disconnect in some of these areas for sure. I believe most financial planners recognize the importance of understanding their clients, but how that’s communicated to the client needs to be re-evaluated. It might be their intention, but it’s not coming across.”

For example, both clients and planners were asked if the following quantitative topics were part of their conversations:

And if the following qualitative topics/issues were addressed:

“Ironically, these results were a complete reversal from the original 2006 study when clients rated their planners higher than planners had rated themselves,” the study noted. “Do planners have a false sense of overconfidence, or have clients become more critical of planners’ communication skills? More work is needed to understand why this shift occurred, but these results remind us that a real connection with clients cannot be assumed.”

In addition, in four key areas of that all-important qualitative data gathering, planners continued to rate their effectiveness much higher than their clients did. When asked if their planner made an effort to learn about:

Effective financial planning is a highly individualized process, so first and foremost financial planners must use a qualitative data gathering process that allows and encourages clients to communicate their values, priorities, hopes and concerns, the study said. Financial planners also need to put more work into one other area of their client relationships, and that’s with regard to recognizing and managing client financial anxiety.

According to the study, planners greatly underestimate their clients’ financial anxiety. On average, planners thought financial anxiety affected about half of their clients, but nearly three-quarters of clients reported experiencing financial anxiety at least half of the time.

If a planner thinks for a moment that’s a client problem, not a planner problem, the planner would be dead wrong, as a client’s financial anxiety decreased their rating of planner ability to deliver services related to every communication topic explored in the research and to most of the communication tasks and communication skills as well, the study found.

“Planners have to realize there is a difference between financial stress and financial anxiety,” Anderson explained. “Financial stress can be alleviated by a change in circumstances. Financial anxiety is much more pervasive, and often the clients can’t identify what is causing their anxiety. And improvements in a client’s financial life doesn’t necessarily alleviate that anxiety.”

In fact, she said, a planner can show this kind of client hard numbers that prove they’re in a good financial position, but that won’t translate to ease of mind—and this whole dynamic can become very awkward.

“Planners tend to be uncomfortable with client emotion, and yet emotion is so embedded in their clients’ financial life,” she said. “Helping the client requires helping the planner to recognize what these different characteristics are and some techniques for handling them. This is going to be part of their work whether they like it or not, so they might as well get used to it and accept it.”

One thing a planner can do is find a tactful and kind way to connect such a client to counseling services through which the anxiety could be addressed, she said. Another avenue for identifying which clients might benefit from counseling would be to incorporate a brief financial anxiety scale into the client intake process.

All of this matters, the study found, because clients don’t actually evaluate planners on performance, or make referrals based on performance either. That’s because true performance takes years to be able to assess. Instead, clients evaluate their planners based on relationship, and it’s the quality of the relationship, not the ROI, that leads to referrals.

“There has been such an emphasis on performance and return for so long. That that’s what planners have built their approach on—they have a better method. But they can’t make that promise. There are too many factors that go into return,” Anderson said. “They really need to be building their relationships on understanding a client’s needs and responding to those needs. Performance alone does not support goals.”

However, there is some good news coming out of the 2021 study as well, and that is that clients want at least some virtual engagement with their planners, even post-pandemic. Some 57% of clients expressed a preference for virtual meetings going forward, whether used exclusively (almost 29%) or with occasional in-person meetings (28%).

Planners also expressed a significant preference shift for virtual meetings. Before the pandemic, one in five had never held a virtual meeting, and 46% had used them only “sometimes.” Now, 80% expect to use virtual engagements at least some of the time going forward, about 37% expect to use virtual meetings most of the time, and 7% expect their exclusive use. 

The research, fielded May 25 through June 15, 2021, ended up qualifying 352 financial planner responses and 429 of their clients. The full study is available at the FPA website.