The 4 Tiers of Value Advisors Provide to Clients

A high EQ, or emotional intelligence, will be more important to financial advisors’ success in the coming decades than a high IQ, according to a Fidelity Investments leader, who outlined four tiers in the “advice hierarchy” that firms should climb to provide more value to clients.

“I personally believe that the top advisors over the next decade or two will actually be those that have the greatest EQ rather than IQ,” Michael Durbin, Fidelity Institutional president, said Monday at the Securities Industry and Financial Markets Association annual conference. “It’s going to really be those who can modify behavior and coach and sell and be empathetic.”

Durbin urged advisors to embrace the promise of the cloud-based “platform economy” and the burgeoning third-party provider ecosystem that makes it easier for clients and allows firms to focus on the value that can be their long-term differentiators.

He described four layers in the advice “value stack” or hierarchy, from the base level to highest. Advisors that do well in the first two levels should gain clients’ permission to get closer and go to the next, Durbin noted.

• Foundation, in which advisors manage their clients’ money, including portfolio construction, trading, billing and manager selection. “You have to do that extraordinarily well. You have to always do it well. That’s the nature of a base. A customer is not going to allow the advisor to come up the stack with him or her unless that foundation is constantly performing well,” he said.
• Helping clients reach their goals, including financial and tax planning, which Durbin said most of the industry has embraced.
• Putting clients’ minds at ease. This tier may involve insurance products, but “it’s also really putting a premium on that advisor’s EQ,” Durbin said. “Invariably something’s keeping clients up at night.”
• Helping a client achieve fulfillment, a tier that involves trust and estate planning and generational wealth transfer.

“The faster an advisor and advisory firm can get up that value stack, we think the quicker a sustained differentiator can emerge,” Durbin said at the event, which was streamed online. “You have to employ more EQ than IQ the farther you go up that stack,” he said, adding that there are many outsourcing options to help provide the IQ.

Fidelity is “putting a ton of content, education, product offerings, research against this notion of ‘Don’t be afraid to take yourself or your firm up this advice value stack,’”  he said.

For decades, firms have done amazingly well with a linear value chain comprising advisors, product line, asset allocation, accounting systems, billing systems and CRM, Durbin said, noting that they just had to win and keep clients in that value chain. Now value webs are emerging, with numerous options for firms to outsource and address each core capability, he explained. 

The rise of the platform economy makes it easy for advisors and firms to get into the “exploding ecosystem” of providers and pick and choose the right components that are going to “deliver great value at a cost-effective price for the customers that we’re serving but more importantly allow that firm to focus on what’s going to differentiate them long-term,” Durbin said.

The successful firms and individuals, he said, “will be those that can navigate it and curate it” and tease out their individual advantage.