Delivering Value Through Financial Planning

In a time when consumers have access to investments, trading platforms and performance reporting simply by turning on a computer or using the one they carry around in their pocket, how do financial advisors truly add value?

Generations of financial professionals have defined themselves professionally by the portfolio performance they can achieve with the investment platform they offer. For many financial advisors, client meetings have centered mainly on discussions of stock, bond and fund holdings, their performance and a vision of when to sell them and buy others. While the profession has seen an evolution in how clients pay for this type of work, from commission-based to now primarily based on a percentage of the value of the assets managed by the advisor, this shift in services has not changed how advisors add value or differentiate from competitors. Many advisors continue to serve their clients mainly through investment management and portfolio construction, allowing their perceived value to hinge on the performance of the assets they manage. Even if the financial advisor consistently achieves positive returns for clients, how does that make them different from their equally skilled and investment-savvy peers?

In a time when consumers have access to investments, trading platforms and performance reporting simply by turning on a computer or using the one they carry around in their pocket, how do financial advisors truly add value? There are three main techniques that advisors and firms need to incorporate if they want to stand out from their competition in the wealth management ecosystem – focus on client outcomes (goals and objectives), holistic advice and behavioral coaching.

Focus on Personal Outcomes

Services and skillsets evolve in our profession in response to consumer demand, regulatory requirements and the professional’s need to differentiate. Other more rapid drivers of change include technological advancements and, as we’ve recently experienced, disruptive global issues like pandemics. Our industry has reached a moment of realization that the worth of a financial advisor is no longer defined by their ability to beat a benchmark, but rather it is “…measured by the impact that their services can have on investors’ financial outcomes.”

To be most impactful on clients’ financial outcomes, an advisor must change their focus to prioritize the goals of the individual investor, building a deep relationship and trust with each client. According to Vanguard’s 2022 survey of investors utilizing human and digital advice providers, advice is valued by consumers across portfolio, financial and emotional outcomes. Human financial advisors added considerably more perceived value to their clients than their digital counterparts, providing “an additional perceived 5% in returns, $160,000 in financial success towards goals and three times the emotional support as compared to investors managing their investments on their own.” These considerable advantages bring opportunities for advisors to make impactful, personal connections with clients. Advice generated by digital providers does not provide the level of emotional validation for consumers to make fully confident decisions. Going forward, financial advisor value will be defined by his or her ability to re-focus clients on why they are investing, help them understand the broad-reaching implications of their financial decisions and to build long-term, trusting relationships that stand the test of rising and falling markets.

A Financial Planning Process That Delivers Holistic Advice

“Over the last 12 years, investor satisfaction with the quality of financial advice received has skyrocketed from 41% in 2009 to 81% as of 2Q 2021. While this bodes well for existing traditional advice models overall, advisors will need to continue to focus on broadening the scope of their guidance as well as updating their offerings to match evolving investor preferences… .” Financial advisors must be prepared to execute on the higher value proposition of advice generated from a consistent, repeatable financial planning process. Firms need to understand that simply changing their advisory service model to include financial planning services isn’t enough to differentiate them; financial planning services are table stakes. Investing in modular or comprehensive financial planning technology isn’t enough either, as giving access to planning technology without proper workforce training doesn’t magically create financial planning professionals. “The real differentiator for firms is the qualifications of their advisor workforce...” that is equipped with the skills and experience to use the firm-provided tools to their fullest potential to create a quality financial planning offering that is actionable and impactful for clients. The firms that will truly stand out to consumers will require advisors to obtain training and professional certifications that demonstrate their ability to meet demands for financial planning. Firms that are strategic in choosing and promoting certifications that teach and develop the skills needed to create quality, personalized advice from the financial planning process will attract and retain today’s consumers.

A competitive financial planning offering takes commitment from all levels of the firm.

A competitive financial planning offering takes commitment from all levels of the firm. The financial planning process and the holistic advice it generates must align with the firm’s strategic priorities around creating unique value that is client-focused and designed to improve client outcomes. Firm leadership must believe in and communicate the value of a long-term, comprehensive financial planning relationship and make a commitment to build out well-trained workforces that can rise to these new challenges.

Understanding the Impact of Emotions on Financial Decisions

The knowledge gained through licensing, training and continuing education gives financial advisors the technical aptitude to explain financial concepts and illustrate products and strategies for their clients. But financial decisions are inextricably tied to emotions. Advisors who can identify and respond to changes in clients’ attitudes and behaviors, as well as the situations that impact decision-making, will have the advantage over those who aren’t equipped with these abilities. Our recent blog, "Training for the "Personal" in Personal Financial Planning," introduces readers to CFP Board’s newest publication, The Psychology of Financial Planning. The article discusses how this body of knowledge will equip CFP® professionals with the ability to skillfully handle the emotional component of financial decision-making.

Today's advisors need the skills and characteristics beyond what a client’s digital advice provider can offer. Human advisors must have empathy, strong communication skills and the ability to recognize certain behaviors in their clients (or themselves) that can impede a client’s progress toward their financial goals. Investors surveyed for a February 2022 Vanguard study responded that “…human advisors excel at delivering emotional outcomes.” The same survey found that investors valued the efficiencies of technology when constructing portfolios and other functional tasks like opening accounts but relied on the “…uniquely human value proposition…” to address their emotional and behavioral needs. To help clients in areas they cannot already do themselves, advisors must position themselves as behavioral coaches, framing decisions to be relatable to clients and, when needed, neutralizing emotions that may negatively impact clients’ ability to meet their financial goals.

Thanks to the internet, competition for your clients is everywhere and ever-present. Staying relevant in our profession has never been more challenging. Firms need to re-tool how they approach advisor training, building infrastructure to deliver and maintain these important ideas: a focus on client goals, a quality holistic advice offering and behavioral coaching. CFP® professionals are well-equipped to deliver on today’s higher value proposition, given their training related to goals, creating advice through financial planning and, thanks to the new body of knowledge in The Psychology of Financial Planning, they will gain added competence and confidence in their ability to better handle the emotional components of the client-advisor relationship.

CFP® professionals at your firm and across the country are prepared to compete and they are prepared to add value to stand out in a crowded field. But what about your advisors who aren’t CFP® professionals? How will your advisors who continue to serve their clients only through investment management or portfolio construction offer the additional value clients are demanding? As your firm sets goals for 2024 and beyond, consideration should be given to the resources needed for your advisors to stay relevant, adding true value to relationships with your current and future clients.

1. The Value of Advice: What Investors Think, What Advisors Think and How Everyone Can Get on the Same Page, Morningstar Investor Success Project
2. Quantifying the Investor’s View on the Value of Human and Robo-Advice, Vanguard research, February 2022
3. U.S. Retail Investor Advice Relationships 2021, Cerulli Associates
4. Strategic Conversations: Designation Policy to Designation Strategy, CFP Board, 2021

Interested in discussing how CFP Board can support your firm’s certification efforts? Contact [email protected].