An advisor with two clients (Photo: iStock)

No matter what type of business model an advisor follows, it’s their ability to understand their clients that is the key to their success, found a new study  by the Financial Planning Association, Capital Preferences and T. Rowe Price.

The study, “The State of Client Understanding,” found that advisors who use leading “know your client” behaviors are more likely to get deeper fulfillment from more client relationships, get more referrals and see a higher net client growth rate than those advisors who do not engage in those behaviors.

The new study sought to identify behaviors and techniques that advisors can leverage to know their clients. Survey results came from 311 responses from advisors in the United States, Australia and New Zealand. The majority had 20 or more years of experience, had a mix of fee and commission business models, and were RIAs. Client count was evenly distributed among less than 70, 70 to 129, and 130 or more clients.

Other findings in the study were that high-performing advisors, or what the study calls “behavioralists,” deliver value “by pinpointing ‘say-do’ misalignments.” That is, those advisors who can identify the difference between what clients say and what their behaviors show, and constructively resolve those gaps, show a higher success rate with clients.

Findings also showed that advisors who spotted the say-do disconnect, and took action, had a 30% client growth rate vs. 11% for those who didn’t, had double the referral rate (18% vs. 9%), and more fulfilling relationships (75% vs. 60%), according to the study.

Know Their Family, Too

Also, those advisors who were “more proficient in ‘know your client’” practices spent more time engaging their clients’ partners and children, the study stated. Further, they were 40% more likely to discuss aging-related lifestyle transitions and cognitive decline with clients and their families.

Today, only one out of seven advisors actually have this ability with clients, said Pat Spenner, chief marketing officer of Capital Preferences. What do they do differently? “Excel at pinpointing say-do gaps and work with clients and coach on behavioral change,” he said.

Behavioralists also “embrace tensions and deal with [them]. They see [those] as “points of opportunity,” he said. “[Behavioralists are] kind of are like a life coach.”

Research questions focused on client profiling tools and methods as well as perspectives on workflow, relationships and business, testing 80 different “know your client” building blocks.

Questions included advisors citing percentages that applied to them:

  • “I understand the client’s important personal life issues not immediately tied to finances (e.g., relationship issues, emotional wellness, health/aging concerns)”
  • “I investigate unrecognized conflicts in the client’s underlying motivations (e.g., values, desires, perceived obligations)”
  • “I co-explore with the client the discrepancies between their self-perceived and actual spending behaviors (i.e., what a client claims to spend money on compared with their actual spending data).”

High-performing advisors, who are 40% more likely to be able to deal with age-related issues, are essential going forward, said Jean Dunn, T. Rowe Price vice president. She said that with the $24 trillion of wealth transference over the next 12 years, “It’s important for advisors to extend their relationship beyond being the family CFO.”

The study also found that high-performing advisors typically spend a lot more time understanding client partners or spouses in the first year of the client relationship; they will spend 6.1 hours with a client’s partner in year one, versus the average 4.9 hours. In addition, they are more likely to facilitate family conversations around wealth transfer (43% vs. average of 32%), and facilitate working with the children of clients (23% vs. 12%).

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