How to Prove Your Value as a Financial Advisor

According to Cerulli’s U.S. Advisor Metrics 2023, asset under management (AUM) per advisor decreased year-over-year by 12.9%, marking the first year-over-year decrease since 2018. In addition, 55% of advisors report that new client acquisition is the greatest challenge faced by their practices.

While scale and growth are evergreen goals for financial advisors, this is not a typical year. The storm of market trends and investor demands will push advisors more than ever to prove they’re worth hiring.

To demonstrate their value, advisors and wealth managers can refine their engagement strategy around four key client conversations that they can expect to have in 2024.

Investors are coping with a trifecta of uncertainty.

• Economic Slowdown: Morningstar economists expect real GDP growth to slow in 2024, and our researchers predict the U.S. economy will feel the lagged effects of the Federal Reserve’s interest rate hikes.

• Political Instability: Geopolitical tension looks plentiful in 2024, including war in the Middle East and Europe as well as elections in the United States, United Kingdom, and India. Advisors will need to be able to address client anxiety and think long-term.

• Market Volatility: Fluctuating economic and capital market factors contribute to an unpredictable global and domestic financial landscape.

As they deal with this trifecta of uncertainty, investors may increasingly turn to financial advisors with questions about portfolio adjustments, financial planning, and whether they’ll be able to meet their goals.

This gives today’s advisor a unique opportunity to protect their client base and grow their business. Financial advisors can help navigate their clients through a sea of confusing (and potentially alarming) headlines, offering direction regarding investment options, risk tolerance, identifying and meeting goals, and service-level personalization.

Below are four types of questions advisors should expect from clients, and what they’ll need to prove they’re worth the investment.

Here's one scenario advisors may encounter. A current client calls and asks, “Given the tumultuous economy, I’m worried about the asset classes that I’m currently exposed to. Also, my friends are suggesting alternative investment classes...do you have 15 minutes to connect this week?“

As they face uncertainty, investors want to understand their investment options. And due to the proliferation of available investment information, they have more choices than ever.

However, 1 in 4 people in our Voice of the Investor study indicated that they feel uncomfortable making investment decisions. These are not rookie investors—95% of the participants in the study are involved in their household’s investment decisions and those who are actively investing have been doing so for an average of 15 years. However, the top reason cited for their investing discomfort was not having enough knowledge to make the right decisions.

Advisors can demonstrate their value by helping investors break free from their decision paralysis. They can provide direction and clarity as investors consider their options, showing their clients which choices will support their goals.

To answer questions around investment options, advisors will need:

• A 360 view of client assets—visibility into every facet of a client's portfolio spanning traditional and alternative asset classes.

• Actionable market intelligence with the latest data on the product, public and private asset class, security, and thematic trends influencing the markets today.

Another question financial advisors can expect is, “The recent market volatility makes me feel like all investing options are too risky and high interest cash-based options look more attractive. Should I stay invested or should I do something different to protect my money?”

Data shows that risk tolerance is a consistent personality trait. It doesn't change with market wins or losses.

However, according to our Voice of the Advisor study, 47% of investors claim that “My advisor’s ability to understand my tolerance for risk and appropriately align my investments to that level” is a top quality they seek in a financial advisor.

So, although a client’s risk profile is unlikely to change because of market volatility, advisors who understand their clients’ risk tolerance and consistently tailor their recommendations accordingly will keep their trust.

Accurate risk profiles make investors feel understood and seen by the person they’re entrusting with their money.

To successfully answer questions about risk, advisors will need:

• An academically-validated risk questionnaire so they can calculate their clients’ risk tolerance methodologically and at scale.

• Solutions that create holistic risk profiles and connect them to client goals in one tool. Disparate systems can lead to workflow snags, higher costs, and uneven advisor-client experiences.

Investors want advisors to demonstrate that they can help them meet their goals.

Advisors can expect scenarios like this question from a newly married couple: “We are worried about our ability to hit our financial goals, and we think working with an advisor would give us more peace of mind for the future. What do you recommend in the current market environment for us?”

According to our Voice of the Advisor study, 56% of investors claim that “Personalized and tailored financial advice that meets my specific goals and needs” is a top quality they seek in a financial advisor.

In response, advisors are expanding their focus on goal-based financial planning. According to our study, 37% of new advisors (1-5 years of experience) and 39% of seasoned advisors (6-15 years of experience) indicated that they would like more help in goal-based financial planning.

Goal-based financial planning can clarify client priorities so advisors can achieve personalization at every stage of the investor lifecycle. However, they will need:

• Goal-based planning software that facilitates meaningful client conversations in one tool.

• Intuitive dashboards, asset views and reports that provide the flexibility and choice to share their recommendations in the terms their clients will understand.

Investors have increasingly high expectations about advisor services. Prospective clients may ask questions like: “My current advisor is not able to provide me with the level of support I need to feel comfortable in this market environment. Can you demonstrate how the depth and breadth of your services will give me confidence to weather the storm?”

According to our Voice of the Advisor study, 27% of advisors plan to offer at least one additional service in the next 12 months. Investment management and financial planning are no longer enough – advisors are now including business planning, insurance services, and tax planning to meet investor expectations of concierge-level service.

When investors ask questions about the types of services advisors and wealth managers can provide, service-level personalization can set them apart from their competition. To succeed in these conversations, they can:

• Offer a scalable yet distinct range of investment options that caters to specific needs and preferences of their clients – for example, flexible models and direct indexing portfolios.

• Demonstrate the ability to provide more concierge-type services such as estate and tax planning, or insurance themselves, or a network of specialists that they outsource to via personal recommendations.

As investors ask, “are advisors worth it?”, advisors have the opportunity to demonstrate their value. By answering investor questions around investment options, risk management, and meeting their goals, they can boost prospect conversions and expand their wallet share.

Read about more trends affecting advisors and wealth managers, including:

• The Economics of Advice: Morningstar research finds that fund fees have fallen over the past two decades. Find out how the ongoing trend affects advisors.

• The Reality of Alternative Investments: Interest in alternatives, like fractional real estate, continues to rise. Advisors need transparent data to evaluate and construct portfolios with these securities in mind.

• Personalization is in Demand: To demonstrate value and scale your responses effectively, it's crucial for advisors to comprehend the evolving needs of today's investors.

With more investment data at their fingertips, investors expect more from financial advisors and wealth managers. Show the value of your advice in turbulent markets and the expanding investment universe with Morningstar’s trends and products for advisors and wealth managers.