Ordinary investors don’t get as excited as their advisors by mutual funds and annuities, yet we still find that advisors believe that these and other investment vehicles are their products.
But that is like saying that cloth is the product clothing-shoppers are seeking, says Boston-based financial services industry consulting firm Dalbar, in a new report on what it terms “purpose-based asset management.”
The report on “goals reporting” is part of a broader series entitled “Statement Strategies: Reports that Provide the Competitive Edge,” for which Dalbar charges its members $8,500.
Clothing shoppers are seeking a certain look, and clothing designers therefore target their offerings differently to boomers than to their Gen Y grandchildren.
Yet perplexingly, “when it comes to financial services, this logic breaks down,” states the report, which places most of the blame not on product firms but on advisors and their broker-dealers who fail to distinguish between boomers planning for retirement and Gen Y members planning a wedding.
“Investor statements have come a long way in terms of communicating in a way that clients can understand the status of their investments,” Dalbar managing director Kathleen Whalen told ThinkAdvisor. “However, they fall short in a critical area — putting investment information into context so investors know what actions they must take to ensure they are on target to reach their goals.”
Indeed, investors are not seeking a hot fund but the achievement of a financial goal. “In financial services, achieving the goal is the product. The firm that truly helps investors achieve their financial goals is the firm that offers the market’s best product,” the report states.
And a key underutilized tool to help drive this process is the most basic tool in the toolkit — the investor statement, which Dalbar terms “the marquis investor communication.”
Currently, these quotidian documents are used as mere accounting reports which ignore the client’s true purpose for investing. But were that to change, investors would have a greater likelihood of achieving their goals and enjoy greater customer satisfaction.
Dalbar cites approvingly Wells Fargo Advisors’ “Envision” statements among isolated other examples, and recommends that broker-dealers modify their statements to help advisors shepherd clients and prospects through a process that clarifies goals and helps them keep those goals in focus.