Financial advisors losing clients over poor communication skills

Clients ditch advisors who are bad communicators. Here's what to do

January 18, 2023 6:54 PM

Independent financial advisors bill themselves as offering a more personal touch to managing a client's money. By acting as a fiduciary and taking a "holistic" view of long-term goals like paying for college and retirement, they understand a customer's money needs and life better than brokers do, the messaging goes.

So it would seem logical that such advisors, who charge conflict-free fees and offer the highest level of client care, would spend more hands-on time with their clients — and that brokers, who charge commissions, are transactional and exposed to conflicts of interest with the products and services they're incentivized to sell, don't.

Logical, but wrong, according to a recent study.

Since the pandemic emerged in 2020, brokers (also called advisors) at the largest banks and brokerages on Wall Street have engaged in face-to-face meetings with clients more frequently than have independent advisors and independent broker-dealers, the study by YCharts, an investor information company in Chicago, found. Clients of Merrill Lynch, Morgan Stanley, Wells Fargo, UBS and Edward Jones — all wirehouses and some of the largest firms — get more face time with their financial stewards than they do with a wealth manager at a registered investment advisor (RIA) or independent broker-dealer such as LPL, Ameriprise, Advisor Group, Cetera or Raymond James.

"Wirehouse advisors are prioritizing in-person meetings more so than their broker-dealer and independent advisor counterparts, who are more likely to favor a hybrid or virtual-only approach," the December 2022 report found. "While virtual meetings seem like a viable path to scaling the number of meetings an advisor can handle, perhaps the reduction in face-to-face contact has contributed to client feelings of reduced communication."

It's one of many surprising findings in the study, "How Can Advisors Better Communicate with Clients? Comparing the State of Advisor-Client Relationships Pre- and Post-Pandemic." And it's not just a factoid: A large number of clients reported that poor communication skills by their advisor during COVID-19 prompted them to switch to a different planner.

Last October and November, YCharts surveyed 671 investors aged 18 and over who work with a professional financial advisor. Nearly two-thirds had assets of at least $250,000. Nearly 46% were clients of wirehouses, while just under 22% used an RIA. The findings, some of them counterintuitive, aim to shed light on how advisors have functioned since early 2020, when COVID first hit.

A similar YCharts survey in December 2019, before the pandemic hit, found that clients didn't feel engaged and wanted personalized communications and content that is "hyper-relevant" to them.

"Clients resoundingly answered that the frequency and style of their advisors' communication directly impacts their confidence in a financial plan, their likelihood of retaining an advisor and their willingness to refer their advisor to family and friends," the previous survey found. "Your success can be directly impacted by your communications strategy."

Scroll through the slideshow for data from YCharts on how many clients are switching advisors and why, along with findings on how advisors can communicate effectively with their customers.

Advisor hopping

A quarter of surveyed clients considered switching to a new advisor, with an additional one in five, or 21.8%, actually making the jump to a new human advisor or a robo-advisor.
Clients under the age of 60 were even more likely to make a change, with 27.3% switching advisors and 29.8% considering it.
Some 28.7% of respondents reporting more than $500,000 under an advisor's management switched advisors since the onset of COVID-19, compared to just 14% for clients with less than $500,000 invested.
"The potential for client attrition is too big of a threat to ignore, especially as portfolio values and collected fees declined throughout 2022. According to survey results, clients are watching portfolio performance more closely than they have in years prior, when markets were much more forgiving."
Landing new clients is "the ultimate way to combat the headwinds advisors face" post-COVID, "and an improved communication strategy can help. Nearly nine of every 10 clients consider their advisors' communication frequency and style when deciding whether to retain their services or when making referrals,the lifeblood of many advisory firms.
Building wealth for clients is "closely tied with building trust and understanding. With a more thorough and regimented communications plan, confidence in financial plans and understanding of investment concepts can be boosted meaningfully."

Call me

COVID-19 altered the ways in which advisors of all stripes meet and communicate with their clients.

Before the pandemic emerged in early 2020, nearly half, or 49.3%, of clients met exclusively in person with their advisors. During the past two years, that rate plunged to 28%.
Meanwhile, the number of clients who met both virtually and in person skyrocketed to 51.7% of all clients, from 38.2% pre-pandemic.
"While virtual meetings seem like a viable path to scaling the number of meetings an advisor can handle, perhaps the reduction in face-to-face contact has contributed to client feelings of reduced communication.

Tell me what I need to know, now

Communicating effectively with clients is essential to an advisor's business success.

More than a third of advisors' clients say they are contacted infrequently, rarely or never, while 1 in 5 clients feels their advisor contacts them very frequently. These levels have remained largely unchanged through the pandemic.
Nearly 9 out of 10, or 88.2%, of clients would consider their advisors' frequency and style of communication when deciding whether to retain their services. Slightly more consider that when referring someone to an advisor.
"Less frequent contact can negatively impact clients' confidence and comprehension." Clients who said they're contacted frequently or very frequently understood 73.3% of meeting material, on average, compared to just 63.9% for clients who are infrequently contacted.
Infrequently contacted clients are more than twice as likely to use social media or other news sources to get answers to their questions.

Investors have new priorities

What clients want from a financial advisor has changed since the pandemic. As the S&P 500 fell nearly 20% last year after the longest bull run in history, investment returns became the top priority.

"Portfolio performance was the single most important factor for a client's satisfaction with their advisor during the pandemic," the survey found. It wasn't pre-COVID, when the No. 1 priority was having and advisor with "deep understanding of me and my goals."

The business case for effective communication

More than 14,000 SEC-registered investment advisors served nearly 65 million individual clients with a collective $128.4 trillion in assets as of the end of 2021, according to the Investment Adviser Association's most recent industry snapshot. The trade group reported that since 2019, the number of individual investors working with independent advisors grew nearly 48%, with advisors boosting client assets by more than 80%. The figures don't reflect 2022's market downturn.

"Investment advisors stand in a special relationship of trust and confidence with their clients," the trade group says on its website. "As fiduciaries, investment advisors have an affirmative duty to act in the best interest of their clients with care, loyalty, honesty and good faith. Fiduciary duty is overarching, broad and applies to the entire advisor-client relationship."

Advisors entered the pandemic in early 2020 already facing a host of challenges, from robo-advisors, investing apps and zero-commission trading. Then COVID-19 introduced a new set of hurdles: market volatility, followed by a steep drop last year, inflation and disrupted communications with clients.

As advisors seek to deliver more value to their customers, the YCharts study said, "their clients' need for meaningful, compelling and actionable communication has never been greater."