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April 09, 2020 at 12:10 PM
It has long been thought that emotions play a role in investors’ perception of the value of financial advice. A research paper released recently by Vanguard appears to validate that hypothesis.
Researchers estimated that emotional elements account for about 40% of investors’ perceived value of financial advice, while the balance of the perceived value of advice is attributable to functional aspects of the advisory relationship.
The researchers examined the role of 24 key value attributes on advised investors’ perceived value of advice. Each one was characterized as either emotional (e.g., “trusting that the advisor will put my needs first” and “having a personal connection”) or functional (e.g., “balancing saving and investing” and “maximizing investment returns”).
They found a distinct difference in how the attributes were perceived by traditionally advised and robo-advised investors.
The Value of a Human Advisor
Among traditionally advised investors, the components of a financial advisor’s value are organized around the relationship with a trusted advisor and service.
A relationship with a trusted advisor comprises both designated emotional attributes — trust, personal connection and proactive outreach — and functional attributes — constant plan monitoring, expert perspective and visibility of portfolio changes.
Service, on the other hand, represents functional attributes, such as developing a customized financial plan, maximizing investment returns and third-party financial mediation.
“Advisors need to understand what their clients value — and conversely, what they don’t — so they can prioritize the most meaningful aspects of their relationships, Thomas Rampulla, managing director of Vanguard’s financial advisor services, said in a statement.
“In good markets and in tough markets like now, this enables them to foster trust and provide services that resonate. The business benefit of this study for advisors is tangible, as trusted advisors receive increased client loyalty, incremental growth in managed assets, and lower levels of client attrition.”
The Value of Robo-Advice
When it comes to robo-advised investors, three themes comprise the perceived value of all-digital advice services emerged: transparency, empowerment and interaction with the service.
