With clients increasingly shaken by poor performance, advisors face a critical crossroads for client referrals and retention
The return of turbulence to the markets should be the first real test for digital investment platforms, which critics say have benefited from years of positive market performance. It also opens a window for human advisors to show their worth — but that could also be a crucial trial for them.
In its 2019 U.S. Full Service Investor Satisfaction Study, which polled 4,629 investors who work with an advisor, JD Power found a considerable decrease in investor satisfaction late last year. That happened when markets saw a four-year-high in volatility, causing many investors to see their worst returns since the financial crisis.
“In recent years, investor satisfaction with full-service advisors and wealth management firms had been buoyed by the prolonged bull market, but with challenging markets returning investors are increasingly reexamining the value of their advisor relationships,” said Mike Foy, senior director of Wealth Intelligence at J.D. Power.
“What we have found is that it's not enough just to maintain frequent communication with clients; advisors also need to effectively explain and manage expectations around performance,” he continued.
Focusing on investors who received an explanation for their 2018 investment performance from their advisor, the survey found more than half (53%) indicating that they “definitely will” recommend their advisor. In contrast, only 24% of those who got no explanation said the same.
The survey also found that clients who got an explanation are less likely to say they “definitely will” or “probably will” consider switching firms over the next year (10%) compared to those whose advisors didn’t explain their 2018 performance (20%).
“[A]dvisors who fail to have those hard conversations are putting at risk both their future growth opportunities, resulting in reduced client referrals and, in more extreme situations, losing their current clients either to other advisors or to alternative service models,” Foy said.
Managing expectations could be even more important for those serving high-net-worth clients, whose overall satisfaction with investment performance dipped 66 points, compared to 46 points for the whole survey population. With more assets to lose and generally shorter time horizons before they need to tap their assets for retirement, wealthier investors are more prone to panic and desert their advisors for any perceived shortcomings in investment management.
Boomers and pre-boomers also expressed increased concerns about their financial well-being. Three fourths (75%) said they were the same or worse off than the previous year; that’s compared to 58% who said the same thing in a similar survey conducted a year earlier. Those who said they’re “better off” were more likely to say they “definitely will” recommend their primary firm (64%) than those who said they’re “about the same” (49%) and those who were “worse off” (41%).
JD Power also stressed the importance of communication across channels. Across all generational segments, mobile satisfaction suffered the lowest satisfaction, trailing both online/web and phone channels.