Hand-holding.

That’s how financial advisors often describe what they do for clients.

Now there’s new research that lends credence to that idea, noting the importance of advisors who provide emotional support—financial well-being or peace of mind—to their clients.

The Vanguard Center for Investor Research last year published a report that sought to measure the value of financial advisory services to investors. As part of their research, co-authors Cynthia Pagliaro and Stephen Utkus looked not only at portfolio outcomes and financial goals, but looked at “emotional outcomes”—investors’ sense of well-being when they measured the value of advisors’ work.

And what they discovered in their report, “Assessing the Value of Advice,” is that emotional outcomes account for 45% of total perceived value, while 55% of value is associated with functional aspects of the relationship such as portfolio management, financial planning and other services.

Utkus and others weren’t surprised that clients gave such a high regard to emotional outcomes—which included a sense of trust (in the institution or advisor), the investor’s own sense of confidence, the investor’s perception of success or accomplishment in financial affairs, and the nature of behavioral coaching such as hand-holding in periods of market volatility.

“Most of the conventional descriptions of financial advice tend to focus on hard metrics like portfolio results or specific financial recommendations, but it always seemed to us, listening to input from advisors and clients, that psychological and behavioral elements were always a strong component of good advisor/client relationships,” says Utkus. “In the end, good advice isn’t just about improving the numbers; it’s about clients having an improved sense of financial well-being.”

Advisors tend to agree with this assessment. “Attempts to measure something that is essentially qualitative is always challenging,” says Deanna Sharpe, an associate professor in the Personal Financial Planning Department at the University of Missouri. “But results of studies that have attempted to assess such things as trust, confidence, a sense of security, etc., including Vanguard’s assessment, indicates that financial planning is a ‘full-brained’ activity, encompassing both equations and emotions, math and meaning.”

Dave Yeske, the managing director of Yeske Buie, and director of Golden Gate University’s financial planning program, says Vanguard’s “results make total sense to me.”

What’s more, Yeske includes those topics in Golden Gate’s financial planning curriculum. In an investments course he teaches, he devotes four-plus weeks of a 15-week term to various aspects of managing the client relationship in ways that foster trust and minimize “betrayal aversion.”

“We use the insights of behavioral finance along the way, not in our analysis of market anomalies but in the context of managing the client relationship and client behavior,” he says. “This is a hugely important dimension of being a financial planner who manages client investments.”

A number of other institutions are also creating courses and programs aimed at helping advisors learn about delivering emotional value—behavioral coaching and the like. The Investments and Wealth Institute, for instance, last year launched a two-day, multitrack conference that gathered the leading authorities in behavioral economics, neuroscience, human decision-making and communication. In 2018, the CFP Board, in partnership with the Aresty Institute of Executive Education at the Wharton School of the University of Pennsylvania, launched a client psychology course and published a textbook under the same name.

So, given the importance clients place on emotional outcomes, what can advisors do to improve their value with their clients? Should they become more expert in behavioral coaching and behavioral finance? Should they do surveys to find out the degree to which clients trust them?

Yeske says advisors do need to expand their skill and knowledge set far beyond technical knowledge. “If one takes a grounded approach to diversifying and rebalancing and managing transactional and tax costs, the purely investment side of what we do is pretty straightforward,” he says. “It’s managing client perception and client behavior that is the difficult part. So, yes, I think advisors, to be truly effective, need to have an expanded skill set.”

Utkus agrees. “Most advisors have always been aware of the importance of personal relationships in their advisory business,” he says. “But our research strengthens the case for advisors to think about these issues explicitly.”

He says advisors can look at certain strategies to address this—from hiring staff with strong emotional intelligence to starting client discussions about the issues of money and trust (trust in the advisor, in advice given, and even in the financial markets). Advisors who already have customer satisfaction programs can integrate these types of questions into client surveys, he says, to help deepen the clients’ understanding beyond standard measures of net promoter score and willingness to refer.

Of course, it’s one thing to be trained in the ways of behavioral coaching. It’s a whole other thing to be genuine and earnest, according to Sharpe. “Regarding the emotional/relational aspects of financial planning, understanding behavioral economics principles and developing coaching and conversational skills are certainly important and should be incorporated into a financial planner’s professional development,” she says. “But unless those principles and skills are expressed in the context of a genuine caring human-to-human relationship, they will fail to be useful.”

Trust, she says, relates to unfeigned consistent caring about others, which is an element of character and commitment, not curriculum. “In stressful situations, we often need to be heard before we can allow ourselves to be helped,” she says. “If I am not confident that I have been fully heard and my concerns and situation understood, I will have difficulty trusting and working with anyone who offers a solution, no matter how ‘correct’ that solution may be.”        

Robert Powell III writes about retirement issues and produces the Retirement Weekly subscription newsletter. Follow Bob on Twitter: @rjpiii or email him at [email protected].