Investors aren’t just going to their financial advisors for investment and financial advice—they’re going for emotional intentions, too, finds new Morningstar research.
The survey, “Why People Hire Their Financial Advisors and Ways You Can Improve Your Practice,” found that among 312 people who work with an advisor, 60% of respondents said they hired their advisor for emotional reasons rather than financial reasons (40%). In an original sample of 3,003 people, just 21% said they have worked with an advisor.
“This suggests that although financial issues certainly are a common driver of client hiring decisions, there is an additional thread of emotional drivers—like the degree to which someone feels comfortable making financial decisions and their ability to stay the course,” wrote Morningstar behavioral researchers Danielle Labotka and Samantha Lamas in the report.
Two of the most cited reasons for hiring an advisor were discomfort in handling financial issues (32% of responses) and specific financial needs (32%). Respondents in Morningstar’s survey also noted behavioral coaching (16%), recommendations by friends/family (12%), and quality of relationship with advisor (10%) as other common reasons for working with a professional.
When it came to finances, advisors were generally hired for a specific financial need, quality of financial advice and services, return performance-driven factors, or because it was a free service for the investor.
Advisor takeaways
The findings come at a peculiar time when more investors are trending towards robo-advisors, who some say may offer stronger financial advice than the real deal. A May survey by Nationwide Retirement Institute found 31% of survey respondents expect technology to offer greater advice than a professional in the next five years.
However, Morningstar’s findings show that may not be the case. “Handling specific financial issues is not the only way that financial advisors contribute value to their clients; the behavioral coaching advisors provide contributes demonstrable value to client outcomes, too,” the researchers wrote. “Moreover, financial advisors are found to provide better emotional support [for example, peace of mind] than robo-advisors.”
Morningstar underscores the role emotions play in finances and urges advisors to recognize its importance before a client moves on. This means addressing emotions at recruitment and during pitches, said the research.
Next, Morningstar suggests advisors address some common emotional reasons on why investors work with professionals. Do this even if a client doesn’t touch on it first, the research said, as this can help them understand the value professionals add in addition to financial advice. “For example, you may highlight how your current clients feel peace of mind about their finances when working with you, to demonstrate how you can alleviate discomfort handling finances,” Labotka and Lamas wrote.
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Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
