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6 Ways Financial Advisers Are Falling Down on the Job

How they're failing their older clients and prospects

By Richard Eisenberg

Is it possible that there would be less of a retirement crisis in America if financial advisers were doing a better job assisting Americans? I’m starting to think so.

And a recent report —The Changing Face of Financial Advice: 2015 and Beyond — from Corporate Insight, a research firm specializing in financial institutions, makes a pretty convincing case, especially concerning clients and prospects in their 50s and 60s.

The report argues that advisers “do not completely understand investors’ values,” “remain fixated on targeting mass-affluent and high-net-worth investors,” are “predominantly old, white and male” and don’t view “robo-advisers” (firms like Betterment and Wealthfront offering advice and money management primarily electronically) as major competitive challenges. In addition, Corporate Insight says, the nation’s major full-service brokerage firms offer “sub-par mobile and online capabilities.”

For its report, Corporate Insight surveyed about 1,000 investors who have financial advisers and 200 self-directed investors (all the investors had at least $100,000 in liquid assets —money the clients could easily access, not bottles of liquor) and 500 advisers. The researchers also interviewed at length dozens of advisers plus experts in financial services and marketing people knowledgeable about challenges facing advisers.

I spoke to one of the report’s authors, Corporate Insight senior analyst Silviya Simeonova, to delve into six problems she uncovered:

Problem No. 1: Advisers do not completely understand investors’ values. “We saw a significant difference in perception between advisers and investors,” said Simeonova. The financial advisers Corporate Insight surveyed thought the personal relationship they offered was what clients valued most. Wrong. What’s really most important, the investors said, was the adviser’s investing knowledge and investment performance.

People hiring financial advisers aren’t looking for a friend; they’re looking for someone who can grow their money and protect it.

Problem No. 2: Financial advisers aren’t offering enough advice on key issues facing clients and prospects in their 50s and 60s. Call this the holistic hole. Another recent study, by U.S. Trust (Insights on Wealth and Worth), found that 64 percent of wealthy investors talk with their primary financial adviser about only one aspect of wealth management.

But older investors “often want more communication with their advisers as they cope with long-term care considerations and other issues,” the report said. Simeonova added: “Things like long-term care planning and tax implications of investing are ones that financial advisers have to focus on more and more.” Also: second careers and working in retirement. “That’s another discussion advisers have to have with clients," Simeonova said.

This finding echoes a recent report by Hearts and Wallets, a financial research firm, which analyzed advice from 29 financial advisory firms, online calculators and employee retirement plans. It found that only 10 percent of the tools let people include information about their health considerations or ask “What if I’d need long-term care?"

There are some notable exceptions, however, for well-heeled investors. As a recent New York Times article noted, Merrill Lynch, UBS, Morgan Stanley and Wells Fargo either connect wealthy clients with providers offering specialized health care or are training advisers to deal with health and aging issues. (Merrill Lynch made a splash when it hired a financial gerontologist to assist its advisers.)

Problem No. 3: Financial advisers are fixated on targeting mass affluent and high net-worth investors. When Corporate Insight asked advisers to identify the types of prospects they plan to target over the next few years, the most common answer was: people with $100,000 to $1 million to invest. The next most common: those with $1 million to $30 million to invest.

“Very few financial advisers see the value of approaching emerging affluent investors with assets under $100,000,” said Simeonova.

That’s somewhat understandable, since so many advisers charge clients based on a percentage of their assets under management. “It’s so much easier to go after established earners,” said Simeonova. “You get more bang for the buck putting in the same time and effort as you do with people who don’t make as much money.”

But there are millions of less than affluent Americans who could desperately use good financial advice. (I realize a few firms, like Garrett Planning Network, cater to them, and robo-advisers typically charge less than traditional advisers.)

“We believe advisers should look at those people and incorporate them into the business in a way that’s economically sensible,” said Simeonova. “They could offer tiered services, giving a certain level of service and allow clients to upgrade in the future if they make more money.”

Problem No. 4: Financial advisers aren’t addressing the challenges of female investors well enough — and female investors are an increasingly important target segment. Women tend to live longer and have shorter careers than men, which means they have a more critical need to make their money last. But husbands often deal with financial advisers and leave wives out, according to Corporate Insight. Then when a husband dies, Simeonova said, “the wife is suddenly faced with a precarious situation: she has never been involved with financial planning and doesn’t know how to go about it.”

Advisers need to do a better job incorporating wives into their client relationships, Simeonova suggested, “and think of it as a relationship with a family rather than with the principal account holder, so there will be a smooth transition when the primary account holder passes away.”

Corporate Insight also views the paucity of female financial advisers to be a serious problem for the field and for clients. The report said many women prefer to work with female advisers, but just 30 percent of today’s adviser force is female. The proportion of women with Certified Financial Planner designations has been stuck at 23 percent for 10 years, according to Lorie Konish of InvestmentNews.


Problem No. 5: Major full-service firms offer sub-par mobile and online capabilities. “While clients increasingly embrace a digital approach to managing their finances, financial advisers are not leveraging the technologies that can help them work more efficiently,” the report said.

Here, Corporate Insight learned that the advisers rightly see their technology for clients as a weakness. The firm has found these companies score well below hybrids (like Schwab, Fidelity and Vanguard) in providing electronic guidance in areas such as account performance analysis, goal planning tools and mobile capabilities.

The “full-service” moniker seems to be something of a misnomer.

“Full-service firms don’t generally offer a variety of online capabilities,” said Simeonova. “They don’t have a mobile app or if they do, it’s weak. They don’t seem to understand the importance of one-on-one relationships with clients who expect to check their accounts on their own time.”

Why don’t they? “In part, they’re slow-moving,” Simeonova said. “They stress the importance of a human touch and are missing the fact that the entire financial industry is moving in a digitalization direction.”

One glimmer of hope: In the 2015 InvestmentNews Adviser Technology Study, 59 percent of advisers said they are likely to increase their tech spending this year.

Problem No. 6: Financial advisers aren’t viewing robo-advisers or hybrids as major competitive challenges. And the corollary: advisers often aren’t being as transparent about their fees as hybrids or robos and are charging far more than them. (Corporate Insight says the average wealth management client pays around 1 percent of assets under management annually; online managed account services run from free to 0.35 percent of assets with the firm and are “completely transparent on pricing and performance.”)

Transparent? When it comes to their fees and commissions, financial advisers typically are opaque. In the Hearts and Wallets survey, only 46 percent of firms said their policy regarding pricing was to “proactively discuss it with clients.”

Just a minority of Corporate Insight's adviser respondents viewed guidance-oriented hybrid firms as major competitive challenges and only “a small percentage” cited robo-advisers as a challenge to their business. One reason: robos hold just $14 billion in assets worldwide, far less than the amount under management by advisers overall.

“We were surprised how much advisers underestimate the threat,” said Simeonova. “We don’t think robo-advisers will replace humans anytime soon, but they will put downward pressure on pricing and profit margins.”

And, she added, robos’ transparent pricing, lower fees and high-end technology will lead investors to expect the same from full-service firms.

As InvestmentNews Editor Frederick P. Gabriel Jr. just wrote, “Make no mistake: The emergence of robo-advice is a game changer and is likely to have unforeseen consequences on the business of providing advice.”

Human advisers: Are you listening?

Photograph of Richard Eisenberg
Richard Eisenberg is the former Senior Web Editor of the Money & Security and Work & Purpose channels of Next Avenue and former Managing Editor for the site. He is the author of "How to Avoid a Mid-Life Financial Crisis" and has been a personal finance editor at Money, Yahoo, Good Housekeeping, and CBS MoneyWatch. Read More
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