Why Clients Really Hire Advisors: Study

What You Need to Know

A prospect may have a specific financial problem, but they often have other, unspoken needs, Morningstar finds.
A third of survey respondents cited discomfort with financial issues as a reason to hire an advisor; another third cited a specific need.
Advisors should reassure clients that emotional concerns around money are common, the researchers say.

Investors need just as much emotional help as financial help when looking for an advisor and tend to pick one based on multiple reasons rather than to just get assistance with a specific financial issue, according to a new Morningstar report released Tuesday.

In particular, investors surveyed for “Why Do Investors Hire Their Financial Advisor?” indicated their decision to pick a specific advisor was influenced by factors that included their own discomfort handling financial issues and their desire to get help in making good decisions and staying the course.

The two most-cited reasons provided by clients for hiring an advisor were discomfort handling financial issues (32% of responses) and specific financial needs (32% of responses), according to the report. Participants also frequently cited behavioral coaching (17%), a recommendation from friends or family (12%) and the quality of the relationship with an advisor (10%).

There were three main takeaways for advisors provided by the report’s authors, Danielle Labotka, behavioral scientist at Morningstar, and Samantha Lamas, senior behavioral researcher at the company: Emotions come into play at every stage, advisors must recognize that some needs may remain unspoken, and “how you say it matters.”

“Financial advisors are often aware of the role emotions can play when working with clients and know that ignoring them can be costly,” the report says. “Our research extends the importance of recognizing the emotional needs of prospective clients.”

With that in mind and taking into account the survey’s findings, “advisors should be addressing emotions from the start,” according to the report.

The report also points out that, “when a client walks in your door, they will likely tell you about a specific issue they are hoping to resolve.” Although that can often be “helpful in guiding conversations to demonstrate how you as an advisor can provide support to their financial needs,” the report warns “you shouldn’t expect that they will lay out their emotional reasons for seeking help as well.”

After all, the report notes, “clients may feel reluctant to discuss their feelings about why they are seeking help with their finances (especially with someone they just met) because such topics can make people feel some degree of powerlessness.”

But Morningstar’s research indicated that three in five prospective clients sitting across the desk from advisors “will have some emotional driver that brought them in to talk with you,” the report says.

Whether or not a client raises an emotion-based explanation for seeing the advisor, the advisor “can address some common emotional reasons for hiring an advisor,” the report points out. “Even if a client doesn’t have that particular concern themselves, our previous research suggests they may still be surprised to learn about the value advisors add through things like behavioral coaching.”