Advisors are not providing the services their clients are expecting from them and their satisfaction levels are reflecting that, according to a new study published by J.D. Power.
Overall investor satisfaction was 727 out of a possible 1,000 points, according to the company's 2023 U.S. Full-Service Investor Satisfaction Study, which interviewed more than 6,000 individuals who work with advisors or a team of advisors. This represents a 17-point decrease over the prior year’s score of 744, according to J.D. Power.
While overall market performance is responsible for a portion of that score, Tom Rieman, head of wealth solutions at J.D. Power, said that the primary reason demonstrates a more systemic problem within the financial advisor community.
“What advisors seem to be doing still is delivering on investment-centric value propositions,” he said. “It is driven by a legacy investment-centric culture … and legacy sales culture is embedded throughout our industry.”
Clients are still not getting the services they want from advisors. Despite conversations about advisors focusing less on investment management and more on financial planning, most are still not doing that, the study found.
Only 11% of those surveyed reported that their advisors are offering what the study referred to as comprehensive advice. This is personalized guidance from an advisor that focuses on all of a client’s financial and wealth management needs. It includes the advisor demonstrating an intimate understanding of the client’s lifestyle and goals and putting their client’s best interest first.
Of the remaining participants, 42% said their advisors are providing transactional advice and 47% said they receive goals-based advice, the study found.
“Advisors are still delivering on their historic value propositions, but that’s not a value proposition that clients value very much,” Rieman said.
Another aspect of that value that clients expect from their advisors is a financial plan. But only 57% of those who participated in the study said that they have put a plan together with their advisor.
However, just because a client creates a financial plan with their advisor does not mean they are getting much else from that advisor. In fact, of respondents who have a plan, only 56% say they are receiving comprehensive advice. Advisors appear to be helping create a plan and not following up on the details listed in that plan.
“Planning is a critical piece, but I think as an industry we need to toggle and adjust how it's being deployed,” Rieman said. “In many cases, they’re being sold as products [and] they’re not being used as what they’re really good at which is facilitating deeper long-term conversations and relationships.”
This attitude is indicative of an overall problem within the industry which is more of a focus on selling rather than advising. Advisors get more focused on pushing products rather than helping clients make good decisions - decisions that are aligned with the clients' values, goals, and aspirations, according to Rieman.
“Selling is critically important but there’s a point where selling stops and you advise,” he said. “No matter how much an advisor tries to be better at selling – no matter how much they try to do that better, it’s not going to lead to being a better advisor. They are two distinctly different processes."
This focus on selling has led to a severe disconnect between the advisor and their client, the study found. This disconnect has damaged the trust and confidence with the advisor as 32% of those surveyed saying they do not feel their advisor makes recommendations that are in their best interest, while 29% said they do not feel their advisor understands their financial goals and needs.
The lack of focus is discouraging younger clients most of all, the study found. About 27% of the Millennial and Generation Z participants in the study said they “definitely will” or “probably will” switch advisory firms while 49% said they are already working with a secondary firm.
Rieman is optimistic about the future and said that the momentum is heading in the right direction, but advisors are going to need to change as well as those firms supporting them. For advisors, it requires them to re-evaluate what they are doing to ensure that their clients are perceiving the experience they are reciving in the right way. They also need to recognize the difference between selling and advising.
For firms, which provide training and coaching and other support for advisors, they need to readjust their message and that includes re-thinking the way success is defined for advisors, Rieman said. The focus is currently on production, but the solution has to focus also on clients’ success along with traditional advisory success.
“Production is great, but that isn’t necessarily the metric that is going to drive better behavior toward advice versus selling,” he said.