The Services Clients Want but Aren’t Getting, in 6 Charts

News October 09, 2023 at 02:29 PM Share & Print

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Are financial advisory firms giving consumers the services they truly want?

That was the key question Herbers & Co. sought to answer with two recent surveys: one of consumers with at least $250,000 in assets and another of financial advisory firms that together formed the basis of the 2023 Herbers & Company Service Market Growth Study.

“What we learned as the big overarching theme is that consumers do know what they want, and oftentimes they may know what they need,” Angie Herbers, the firm’s CEO and senior consultant, told ThinkAdvisor during a recent interview.

But she said: “Advisory firms are often misaligned with what the consumers are saying they want and need.”

And while the bulk of those advisory firms boast comprehensive planning services, the research found some 250 different takes on what that meant.

“The reality here is that the majority of financial advisors are calling themselves comprehensive planners and we don’t have a standardized definition of comprehensive planning,” she said. “Now, we have guidelines from the CFP Board, but not all financial advisory firms follow guidelines from the CFP Board.”

Here are some of the consulting firm’s key findings on the services clients are asking for versus what firms are actually providing.

1. Tax planning is in the highest demand.

This was a change from earlier studies, Herbers said.

“When we run these studies, it usually is retirement, investment management and cash flow [that are at the top] and the tax planning falls somewhere below,” Herbers said. “But this year that wasn't the case.”

Herbers said she didn’t know exactly what caused the change but pointed out that economic upheaval can change consumer behavior.

“We had a 10 year bull market, and then we had the bear in 2020, and then it's been a little chaotic between now and the beginning of COVID,” she pointed out.

2. Many firms don't offer all these services.

Although 90% of consumers with over $250,000 in assets said they wanted tax planning, only 73% of firms in the survey reported offering it.

“We have advisory firms out there that aren't offering investment management at all and only offering tax planning,” she said. “We've got advisory firms out there that are offering tax planning and investment management, but they aren't even touching retirement planning.”

There is, in fact, a gap in both retirement planning and tax planning, she said.

“So what consumers are saying is: ‘Listen, we’ve got investments covered. We've got insurance covered. We’ve got all of the other areas of planning covered but there is still room for more financial advisors to enter into the retirement planning space and enter into the tax planning space to meet consumer demand.’”

Herbers sees that presenting “huge opportunities for all the combinations of advisory firms out there to grow.”

3. Close rates for all but the highest-growth firms are taking a hit.

Although the top organically growing advisory firms said they closed on seven of 10 prospects, that number is just three of 10 among average firms, according to the study.

Those firms that offer life planning, meanwhile, convert prospects to clients at only a “10% clip,” according to Herbers & Co.

“We would generally see a close ratio above 50% … [but,] across advisory firms, especially in the last three years, we have seen that close ratio slowly falling,” she said. “And I think that that's because of COVID,” she said, explaining: “Consumers became more aware of financial planning … because of all of the turmoil that we were having economically because of [low] interest rates. We also had consumers who had money in their hands.”

Over the past three years, “potential clients were reaching out for financial advisors, but they weren't just getting a referral and going to the advisory firm that their friend works for…. What they were doing is they're shopping advisory firms.” And that stands to have a major impact on close ratios, she noted.

4. Clients are demanding alternatives investments, including crypto.

“I'm not an investment expert, but I'm a trained financial advisor and I can tell you that, in the last 20 years … we’ve had an expansion of investment products and vehicles out there,” said Herbers.

“The most impactful has been alternative investing and crypto – meaning that consumers are looking at these new products and asking themselves: ‘Should I get involved?’ But advisors are saying they can’t get involved because they don't qualify as investors for alternatives. Advisors also are saying very clearly [‘no’] to crypto.”

While “none of the firms we surveyed said that they're giving advice in crypto … 10% of consumers want that,” according to Herbers. “What's going to happen when the consumer or your client comes to you and says: ‘Hey, listen, the biggest crypto ETF out there produced in the last year a 55% return.’”

She added: “That's happening today. So financial advisors can't ignore new investment opportunities, and they can't tell their clients ‘no’ anymore – or it can't just be a hard no. It has to be a deeper conversation about risk, about goals, about the ability to invest in alternatives. It has to be a conversation now.”

5. Fast-growing firms seem to judge their own client experience more harshly.

The top organic-growing firms surveyed “diverged from others in self-evaluating their client experience,” according to Herbers & Co.

Sixty-three percent described their client experience as below average, while 36% of all other firms said their client experience was above average.

6. Clients want true comprehensive advice.

Although 77% of advisory firms surveyed self-identified as comprehensive wealth managers, just 31% offered comprehensive wealth management services, Herbers & Co. said.

“At the end of the day, this survey proved that what works the most is comprehensive advice,” Herbers said, “meaning that you have business planning available to your business owner clients, or you don't take business owner clients; you have cash flow planning available, you have education, you have employee benefits, you have estate planning, you have health care, you have insurance, you have investment management, particularly diversified portfolios, you have retirement planning, and you have tax planning.”

She added: “All these services are part of a company's definition of comprehensive advice, and if you have those services, you will be better positioned … to grow today and in the future.”