In the wake of these major developments, I see an important trend: Financial advisors are increasingly shifting their business models to a client-centric approach that emphasizes building great relationships with clients from a focus on investments and financial markets.
This is a profound and fundamental shift that's taking place in advisors' priorities. I believe this movement toward a client-centric industry from an investment-focused industry is gaining momentum - and that it can set the stage for much greater advisor success and client satisfaction moving forward.
This key finding comes from my firm's recent survey of more than 2,100 advisors of various levels of success and experience. CEG Worldwide's goals with this study was to get a clear view of the state of the overall industry, and to identify any key trends that might point the way to advisors' success going forward.
SIGNS OF CHANGE
Back in 2001, our research showed that a large majority of advisors surveyed (86.2%) were investment-centric - that is, their greatest priorities were on investments, not client relationships. Client-centric advisors made up just 13.8% of the group.
That ratio has largely flipped. When we asked advisors to tell us whether their greater priority was building deep client relationships or maximizing investment returns, they overwhelmingly responded in favor of client relationships.
Over the past 10 years, the importance of taking a client-centric approach to better serve clients and enhance advisor success has become a common theme - indeed, it's advice that's been hard to miss. The underpinnings are straightforward: When advisors foster deeper client relationships, they gain a deeper understanding of their clients' financial concerns and are thus better able to effectively address these concerns.
This, in turn, results in greater client satisfaction - making it easier for advisors to ask for, and get, additional assets and introductions to prospects.
Clearly, there is ample evidence that the lessons of being client-focused are taking root. I don't mean to suggest that all or even a majority of advisors have made a full shift, but we do see substantial differences from a decade ago.
Of course, it's one thing to say that client relationships are your top priority and another to back up that claim. The good news: Advisors are doing so in a number of key areas.
Advisors are outsourcing asset management. Slightly more than half of the advisors surveyed (51.6%) rely on third-party providers to manage the majority of their clients' assets. By turning over the bulk of their asset management responsibilities to third-party outsourcers, these advisors are greatly freed up to focus on client relationships. (Of course, the new data also tells us that 48.4% of advisors don't outsource asset management and therefore have an opportunity to take a step that could greatly enhance their ability to be client-centric.)
Advisors are teaming up to get specific expertise. Slightly more than four out of 10 advisors surveyed (43%) leverage teams of outside experts to address their clients' other financial concerns. These advisors work with a broad mix of professionals, including accountants (68.2% of advisors who work with outside experts), estate planning attorneys (60.5%) and life insurance specialists (34.6%). This use of outside professionals not only enhances the level of expertise available to address client concerns, but also frees up advisors to engage in additional client-facing and business-building activities.
Advisors are focusing on client communication. The majority of advisors surveyed believe that the best response to a sharp market downturn is to reach out to clients, not to analyze their clients' portfolios. These advisors understand that it is during market downturns that their clients need to hear from them most - a key shift in attitudes from the past.
Advisors are satisfied with their client relationships. Basic contentment with client relationships is foundational for a client-centric approach. Advisors who are dissatisfied with their client relationships might be more inclined to focus more on the investment management aspects of their work and less on client relationship management. As it turns out, the advisors we surveyed have good relationships with their clients. More than 90% expressed satisfaction with their client relationships, with more than 40% stating that they were very satisfied. Just 6.8% overall were dissatisfied with their client relationships.