Financial Advisor Blind Spots

Financial Advisor Blind Spots

Oechsli Institute research has uncovered some large perception gaps between advisors and affluent clients. Here are a few. 

Two forces are always present in the human condition: perception and reality. We tend to think of reality in terms of the infinite immutable laws of the universe: The earth is round; it rotates on an axis; gravity keeps us from floating through the universe. But what about your personal and professional relationships? Are you and your significant other on the same page regarding the quality of your relationship? How are you perceived in the eyes of your children? 

Even in healthy personal relationships, there is a strong probability that perceptions differ. This doesn’t mean we have flawed relationships; this is a reality inherent to the human condition. 

Professional relationships are even more challenging, especially when it’s between a financial advisor and an affluent client. In professional relationships, differences in perception can become a serious matter, especially if the perception gap between the two parties is fairly large. 

For the past two decades, The Oechsli Institute has conducted first quarter research projects on affluent investors and financial advisors, and these studies have uncovered some fairly significant perception gaps. Here are a few: 

Blind Spot #1: Financial Planning

  • Twenty-eight percent of affluent investors claim they have a financial plan created by their financial advisor that they are following. 
  • Eighty-three percent of financial advisors claim that financial planning is a “core” part of their practice. 

A 55-point gap between affluent and financial advisor perceptions regarding a deliverable that’s supposed to be tangible begs a few questions:

  • Do affluent clients and financial advisors have the same definition of what constitutes a financial plan?
  • Are financial advisors charging their affluent clients for the time involved in creating their financial plan? 
  • Are financial advisors actually advising their affluent clients in accordance to the plan they’ve developed?
  • Who is right?

If an affluent client pays for a comprehensive financial plan, they are more likely to be aware of the fact they have a plan. Our 2015 Affluent Consumer research on pricing tells us 60 percent will pay the going rate for fair value and 35 percent will pay a premium for exceptional value. In other words, they will pay for a financial plan.

Blind Spot #2: Business and Social Relationships

  • Twenty-nine percent of affluent investors claim to have both a business and social relationship with their financial advisor. 
  • Seventy-four percent of financial advisors claim to have both a business and social relationship with their affluent clients. 

This 45-point perception gap brings up two questions:

  • Do affluent clients and financial advisors have the same definition of a “business and social” relationship?
  • Do financial advisors know their affluent clients as well as they should?

We have four years of metrics telling us that affluent clients “rate” their financial advisor’s overall performance 13 points higher when they have a social relationship with their advisor. 

How does a financial advisor overcome his or her blind spots? The first step is to get unbiased feedback, whether it’s from your assistant, spouse, another financial advisor, or a coach. 

Start with the two areas highlighted above: financial planning and the depth of your client relationships. Addressing these areas can be as simple as making a big deal over advising clients in accordance to their financial plan and making a big deal of updating it. As for deepening the relationship, invite your client to your home for a home-cooked dinner. It never fails. 

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