Technology is at the fingertips of everyone, particularly the affluent investor. It seems like there’s a never-ending stream of new digital platforms claiming to be able to manage your portfolio for a fraction of the price of a financial advisor. All of this gets a lot of press, but most affluent investors aren’t willing to entrust their wealth to an algorithm based on a handful of questions regarding risk tolerance, goals and time horizon, and then trust a computer to do the rest.
This is not to insinuate that robo advisors are going away; it’s just that these digital platforms are designed for smaller clients. If this is your target market, the robo movement is likely to be your Grim Reaper. However, if you’re working with today’s affluent and doing your job, which goes far beyond the asset allocation promise of most of these digital platforms, the robo movement will have no traction in your world.
Our research has been telling us for over a decade that affluent clients want someone who will oversee the multi-dimensional aspects of their family’s finances. In other words, they want a human financial advisor. An interesting piece by Vanguard, "The Added Value of Financial Advisors," cites research that shows how a good financial advisor “may add 3 percentage points of value in net portfolio returns over time.” The report identifies portfolio construction, wealth management and behavioral coaching as to where the value is added, and then places behavioral coaching as the greatest value. This highlights the human element of financial advice.
Meanwhile, the September 2016 issue of Consumer Reports included an entire section entitled "The Rise of the Robo-Advisor," essentially adding their voice to this discussion. Not only did they go into detail about the robo movement, they asked subscribers to rate various investment companies. Not to go down the rabbit hole and debate their ratings (worthy of serious discussion), but the overall tone was not complimentary toward human financial advisors.
This ongoing narrative can lead to clients questioning the value received for the fees paid—many thinking about how often they hear from their advisor. And maybe even questioning whether their advisor has their best interests behind the advice they’ve received. Obviously, this is what the robo movement is counting on.
The robo’s Grim Reaper among affluent investors is composed of three pillars. Each of these pillars is on display within elite wealth management teams. In a nutshell, the antidote to all of this robo noise is excelling in every aspect of the advisor-client relationship. Our research highlights three important areas, which we refer to as pillars of affluent loyalty:
Three Pillars of Affluent Loyalty
1. Professional Excellence
It’s imperative that you’re providing the scope of services your affluent clients both need and want. To that end, you must have the expertise to advise each client on a personal level as to whether a particular aspect of comprehensive wealth management fits their needs. This requires you to deliver the specific services each client needs with the knowledge and insight of how this service is best suited to them. Professional excellence requires that you are in close communication with each client—face-to-face, by telephone and digitally.
Excellence must be the gold standard. This means that every professional interaction with your office, be it an in-office meeting, telephone conversation or solving a problem, must be conducted with personalized Ritz Carlton service that is coupled with a FedEx level of efficiency. Your service must be at a level that no other professional or service provider can match.
All of this boils down to you being able to consistently and naturally quantify, demonstrate and communicate your professional value.
2. Personal Relationships
The more chatter affluent clients hear about fees, robo advisors and alternative digital platforms, the more financial advisors need to personalize the advisor-client relationship. What does that mean? Getting social with clients, mixing business with pleasure and turning clients into friends is of top importance. We have nearly a decade of research that tells us that when a financial advisor has social relationships with clients, their clients rate the advisor’s performance at a higher level in every important category, from service to portfolio construction to wealth management to trust. In fact, regarding fees, 91 percent of affluent clients who have a personal relationship with their financial advisor consider the fees they pay to be either fair or a bargain.
The easiest and most cost-effective way to begin personalizing the relationship is to have non-business meals with your best clients. This is also the activity that our research attributed to the most unsolicited referrals and introductions. Advisors who personalize the relationship while delivering professional excellence get three times the introductions and referrals as those with only a business relationship.
3. Positive WOMI (The Affluent Buzz Factor)
The most influential component of affluent decision making is word-of-mouth-influence (WOMI). They talk. In terms of the decisions they make (small, such as assessment of their dining experience at a local restaurant, or large, assessment of their financial advisor), the affluent place a lot of weight on the opinions of people they know and respect. WOMI can work both ways, so assuming that you’ve personalized the relationship and operate with professional excellence, positive WOMI is close to the surface and is likely to occur when you’re top of mind. This can be accomplished in many ways—a well-timed personalized gift, an unexpected favor, an enjoyable social outing or hosting an intimate event; the list goes on and on.
Always remember, whenever an affluent client stimulates positive WOMI, they’ve become an advocate. Affluent advocates are the perfect example of the robo advisor’s Grim Reaper.
Matt Oechsli is author of Building a Successful 21st Century Financial Practice: Attracting, Servicing & Retaining Affluent Clients. www.oechsli.com