7 Faux Pas for Financial Advisors To Avoid

When it comes to managing a relationship with your client, little mistakes can have big consequences.

Samantha Lamas 26 October, 2023 | 4:39AM
Facebook Twitter LinkedIn

Collage of phrenology head, dice and performance charts along with outlined decorative illustrations

Time and again, research shows the personal relationship between a client and their advisor is paramount to both parties’ success. Without a strong personal relationship, advisors cannot provide the customized, high-quality level of advice that clients are looking for nowadays. Because of this, clients may disengage with their advisor or outright fire them if they experience a lack of personal relationship along with lackluster advice.

In our latest research, we investigated which advisor behaviours contribute to investor disengagement. Moreover, we dove into how investor disengagement presents itself in the advisor-client relationship.

Death by a Thousand Cuts

We started our research by collecting common advisor behaviours. We then asked advisor clients to rate how frequently they experienced each behaviour. For those they reported experiencing, we asked participants to rate their emotional response to the behaviour (on a scale from “I really disliked it” to “I really liked it,” with a neutral midpoint). We then asked participants how each behaviour affected their relationship with their advisor across four dimensions: their trust in their advisor, their decision to collaborate with their advisor, their decision to allocate assets for management, and their decision to recommend their advisor to others.

Common Advisor Behaviours

Behaviours featured in study

Which Common Advisor Behaviours Do Clients Dislike Most?

We found seven actions that clients reported disliking (in order from most to least disliked):

  1. Did not provide a breakdown of fees.
  2. Took more than a week for tasks.
  3. Used financial jargon.
  4. Recommended investments without considering values.
  5. Suggested investment options without going into details.
  6. Asked me to complete long forms.
  7. Did not provide holistic advice.

For the rest of the actions in the survey, clients reported either neutral or positive feelings (see paper for full results). To understand the impact of these disliked behaviours, we created a composite score of the four dimensions and then identified the relationship between the score and each disliked behaviour. We found that how much a client disliked an action had a moderate, negative impact on their relationship with their advisor. In other words, an investor experiencing a disliked behaviour was discouraged from trusting and recommending the advisor, as well as encouraged to invest less with and to stop working with the advisor.

Faux Pas No More: Being Conscious of Disliked Behaviours

Some of the advisor behaviours we investigated in our research may seem harmless on the surface but can lead to disastrous wounds over time. It’s all too easy to wave off these results, with the claim that you (as a financial advisor) don’t do these things to your clients. Other advisors use financial jargon that leave clients confused or speed past investment explanations. Not you, of course. Unfortunately, we find more than half of the clients experienced each of these behaviours with their own advisors—making these behaviours a lot more common than any advisor should be comfortable with.

To help advisors make sure they aren’t one of the culprits, we created a two-step takeaway that’s accessible in the full white paper. The first step is a checklist that advisors can use before and during a conversation with a client, so they can reflect and address the top five disliked behaviours we found in our research. Step two is a follow-up survey template that advisors can send to clients after a meeting. The survey subtlety asks the client if they experienced any of the top five disliked behaviours during their meeting with their advisor. Compared with being face-to-face, the online format of the survey may encourage honest feedback; instead of being put on the spot, clients have time to reflect on the meeting and provide comprehensive feedback.

Together, this two-step takeaway can help advisors ensure they are not accidentally tearing down the relationships they meant to develop.

Get the Latest Personal Finance Insights in Your Inbox

Subscribe Here

Facebook Twitter LinkedIn

About Author

Samantha Lamas  Samantha Lamas is a behavioural researcher for Morningstar

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy       Disclosures        Accessibility