The annual Securities Industry Association Sales and Marketing conference in New York in early October gave marketing big shots at some of the largest wirehouses and regional broker/dealers a chance to network, compare notes, and watch PowerPoint slides in darkened ballrooms of New York's Waldorf Astoria hotel.
As you might expect, regulatory issues received a good deal of attention. But while there was plenty of hand-wringing about the new regulatory challenges and some polite but tough talk from NASD and SEC officials, speakers seemed preoccupied with two other issues: "What do clients really want?" and "How do we train our advisors to perform better?"
The assumption behind the first question is a growing suspicion that brokers are not connecting with their clients at annual performance reviews. In some respects, broker/advisors and clients seem to be speaking different languages. Advisors spend their days using advanced analytical tools to manage their clients' investments. When they meet clients for periodic reviews, they often feel they need to explain their work in mind-numbing detail, complete with returns-versus-benchmark comparisons and asset allocation ratios.
A growing number of studies suggest, however, that clients don't want to hear all that. Although some clients have an intellectual desire to understand financial minutiae, most simply want to understand how their investments are doing relative to their own personal financial goals. Will they be able to retire at 65? How far along are they to paying for their kids' college education? They also want to know that their advisor is paying attention to their affairs and can be trusted.
In his presentation, Brian Nygaard, president and CEO of H&R Block Financial Advisors, stated the clients' point of view baldly: "We don't care what you know, we don't care what you do, we care that you care." According to Nygaard, the massive amounts of information flowing to investors, combined with the panoply of potential investing vehicles, has completely overwhelmed the average investor. As a result, the industry "has failed to deliver straightforward, actionable, financial healthy-living programs for out-of-shape Americans."
Tom Matthews, president and CEO of Citigroup's global private client division, articulated it a little differently. According to him, clients are saying: "Don't talk to me about my money. Talk to me about me. I've got a wedding and a college fund to deal with. Talk to me about that."
Internal Citigroup studies have convinced him that advice and trust are the critical elements in the advisor/client relationship. Clients care less about the exotic tools brokerage firms have spent millions building and more about whether the broker has their best interests at heart. In the old days, he points out, brokers got paid plenty for execution and zero for advice. Now, with declining commissions and the rise of fee-based services, brokers are finding themselves squarely in a service business. "Clients understand that markets go up and down," he said. "They do not understand lousy service."
Gerri Leder, president of Washington-based Ledermark Communications, cited independent studies that examined this issue in some detail. A Forrester Research study called "What Satisfies Financial Services Consumers," argues that companies that are perceived as customer advocates scored the highest in satisfaction levels. Interestingly, independent financial advisors as a group were given significantly higher ratings than firms like Citibank and Prudential Securities.
Leder also cited research by Professor Rob Cross at the University of Virginia, who has published a number of studies examining trust. Cross concluded that there were two tests for trust. Competence-based trust asks the question: "Does this person have the knowledge to serve in this role?" Benevolence-based trust asks: "Does this person have my best interests at heart?" Leder says advisors need to establish both types of trust with their clients and suggested advisors institute trust-building behaviors, including rich and frequent communications and being consistent in word and deed.
The most in-depth look at the issue came from Sylvia Toense, marketing director at Legg Mason, who surveyed her entire client base earlier this year to find out what clients wanted in their performance reviews. The firm got more than 7,000 responses, and the results were overwhelmingly in favor of the non-technical approach. Ninety percent said comparing portfolio results with the attainment of life goals and events was "Somewhat important" or "very important" to clients. The findings were the same across its entire client base by both age and asset size.
Toense cited another study by the Spectrem Group to back up her conclusions. The Chicago research firm's "Improving Investor Communications in the Affluent Market" (see "Watch Your Words" above) found that financial advisors think communication materials should track client performance relative to a benchmark, current holdings, and reasons for asset allocation shifts. Investors, however, wanted advisors to track performance relative to personal goals like retirement and education. They also wanted their advisors to discuss personal risk levels relative to investment performance, and just spend more time discussing their personal needs.
Legg Mason has been encouraging its advisors to give more reviews, Toense says, and to make sure they have a face-to-face meeting with their best clients at least once a year, supported by periodic updates.
The other oft-expressed theme at the SIA gathering was the need for better training for brokers/advisors, though speakers seemed loathe to call it by that name. The new term of choice seems to be "professional development."
Instead of improving their advisors' sales skills, the new emphasis seems to be on increasing their understanding of financial products. The assumption is that brokers who have developed a client base have already proven their ability to sell plain-vanilla products. But the same brokers may not know enough about newer and higher-margin services.
Timothy Steffen, senior VP at Baird, noted that the challenge is to win over "old-school financial advisors" who don't always understand the need for these new services. After an inquiry from a client, they may ask a manager: "Can we do this?" In many cases, he says, the company has been offering that service for years.
James Allen, chairman and CEO of Hilliard Lyons, revealed that many of his top financial consultants were not comfortable with specialized topics like estate planning and were thus reluctant to introduce them into conversations with clients for fear of undermining their investment relationship. So Allen and his team created the firm's Chartered Wealth Advisor curriculum to give them the missing expertise.
The program consists of six 10-hour sessions of classroom instruction, supported by 90 hours of Web-based self study. Advisors work through modules on estate planning and tax-minimization strategies, life insurance, and charitable giving, as well as retirement and business planning.
After they pass, consultants distribute personalized marketing material to clients acknowledging that they have completed the program. "We've seen a big lift in terms of productivity and the quality of business," said Allen. "Clients tell us: 'I didn't know you had that capability.' It's a tremendous door-opener." The program is accredited by the Estate and Wealth Strategies Institute at Michigan State University.
For some firms, training also means teaching better practice management skills to help advisors get organized and set priorities. Legg Mason, for example, sends out marketing, training, and software specialists to their branches as a team to help advisors deliver on their promises.
Joe Kolman is a New York-based freelance business journalist. He can be reached at firstname.lastname@example.org.