The Affluentialist: Reading Your Clients

Last month we looked at a recent study that examined how advisors’ regular relationship with clients is not devoted to just pure financial matters. Advisors and clients end up discussing such serious emotional issues as divorce, health, death, depression, children’s behavioral problems, career fears, religious/spiritual questions, and even addictions. If a client asks you for marriage advice when he’s thinking about leaving his wife and kids for a much younger woman, you know the answer never appeared on a Series 7 exam or in any of the CFP course work.

Not surprisingly, the emotional complexity of the relationship increases as the assets increase, according to Lyle Sussman, PhD, chairman of the department of management and entrepreneurship at the University of Louisville. To make the matter more challenging, the study showed that less than 40% of financial planners had any training to manage such matters. “You have to think up front how you are going to deal with these client problems, because you are going to face them,” notes co-researcher David Dubofsky, PhD, CFA, a professor of finance and associate dean for research at the same university.

Advisors have a distinct advantage if they display Emotional Intelligence (EI), which includes self-awareness, self-discipline, and empathy, among other factors. Dr. Daniel Goleman, who popularized the concept in the mid-’90s, says that emotional intelligence helps explain why individuals of modest IQ can excel in their careers while those of superior intelligence may flounder. The effective application of EI focuses as much on knowing when and how to express emotion as it does controlling it. Empathy, an especially important component of emotional intelligence, contributes to career success, for example. Researchers found that people who were best at indentifying others’ emotions were more successful in their careers and personal lives.

Besides playing a role in one-to-one interactions, emotional intelligence also steers the working of groups, such as advanced planning teams where precise and complex communication is required for team success. Although any advisor will have his personal anecdotal experiences to call upon, experiments have shown that the emotions projected by the leader of a group greatly infect members. Positive feelings lead to improved cooperation and overall performance. Negative emotions in the leader hinder or prevent them.

Basic emotional competency skills, which are linked to and based on EI, can have a profound effect on client relations. An Ameriprise Financial study of advisors identified the emotional competencies in advisors that help them guide clients to make the right decisions about investments resulting in better returns. Such soft skills didn’t make the advisors better investment managers, but they did provide them with the ability to better influence clients to reach better outcomes.

“A key differentiator between financial advisors who help their client achieve positive returns and those who help their clients achieve superior returns is moral and emotional competency,” stated the authors of “Morally and Emotionally Competent Financial Advisors Deliver Superior Client Service and Portfolio Performance,” conducted by the Lennick Aberman Group.

Higher emotional competencies also lead to better client service. Six competencies proved to have the most impact on portfolio results. They also happened to be the center of high performing advanced planning advisors and are outlined on the following page.

Demonstrates Integrity

You provide direct, consistent, and honest communication with clients, even when dealing with sensitive and/or difficult topics.

Sample Situation: A client insists on changing the asset allocation in his retirement portfolio, although you warn him about the long term negative impact of such a change. The client is unconvinced, so you suggest that he seek advice from another investment expert. You demonstrate integrity by willing to give up the client rather than proceed in a way that you know is too risky.

Client Service Orientation

You focus on the client’s point-of-view and are attentive to the tactical aspects of the efficient delivery of services.

Sample Situation: After an initial meeting, it’s clear to you that a couple needs to revise their current estate plan. You provide attorney referrals and participate in all meetings with the one selected, plus all discussion with the accountant and other experts required to create and then implement the plan.

Concern for Quality and Order

You drive to reduce uncertainty in what you present to clients and to clarify the planning processes, roles, and plans.

Sample Situation: You use a regular process for monitoring portfolio performance and communicate with clients at regular intervals through the year. When a client calls with a question, you and your staff have easy access to all of the relevant data with efficient computer and paper files, which are updated regularly.

Teamwork & Collaboration