Evaluating the Financial Planner: A Study of Gender and Task Complexity for Millennials

by Scott D. Johnson, Ph.D., and Stephen J. Larson, Ph.D., CFP^®

Scott D. Johnson, Ph.D., is professor of marketing and dean of the College of Business at Illinois State University. His research interests focus on complex decision making in the context of professional services. He has published articles in the Journal of Financial Planning, Journal of the Academy of Marketing Science, and International Executive. He can be reached at scott.johnson@illinoisstate.edu.

Stephen J. Larson, Ph.D., CFP^®, is associate professor of finance at Ramapo College of New Jersey. His research interests include market overreaction and issues relating to financial planning. He has published articles in the Journal of Financial Planning, Financial Review, and Global Finance Journal. He can be reached at slarson1@ramapo.edu.

Executive Summary

• This paper is intended to help financial planners build more effective relationships with clients
• It examines instrumental and affective cues, which aid clients in choosing a financial planner
• Instrumental cues focus primarily on objectively verifiable measures such as certification or advanced degrees
• Affective cues focus on personal attributes of the planner such as friendliness
• This research suggests that the importance of these cues depends on how complex the planning task is as well as the client's gender
• Specifically, the results suggest millennials will place a higher value on instrumental cues when their needs seem complex, but they will place a higher value on affective cues when their needs seem less complex
• Finally, female millennials generally place a higher value on affective cues than do males

Financial planners increasingly recognize the importance of building enduring relationships with clients. Building a successful financial planning practice requires that the planner move beyond a transactional orientation toward a relationship built on trust that can grow over many years. In addition, it is imperative that the financial planner recognize that financial planning clients may value different characteristics of the planner, which is a natural reflection of both situational and individual differences between the potential clients.

Why study millennials? Millennials, also referred to as Generation Y, the generation after Generation X, are those individuals born during the 1980s and 1990s. This generation, which has different characteristics than any before it, will be confronted with many financial decisions. Although much is written about young people as a generalized group, there is little information about their attitudes and impressions about financial planning. However, millennials are important because they are the future clients of financial planners. This generation is also entering a changing financial landscape. These young adults will face a world of defined-contribution plans, not defined-benefit plans, as they plan for retirement. In addition, millennials recognize that Social Security in its present form will likely not be a major part of their retirement plans.

Millennials are also different in other ways. The Pew Research Center found that: (1) 83 percent sleep with their cell phone (2) females will have higher educational attainment (3) they are less likely to be married at the same age level as any previous generation (4) they define their uniqueness primarily through technology use compared to previous generations, (5) they text with their phones more than they talk on their phones, and (6) they are very optimistic about their financial futures (Taylor and Keeter 2010).

As financial planners look to the future, an important question to consider is how this new generation will make decisions about selecting and evaluating financial planners. Being optimistic about their financial futures, millennials will be seeking financial solutions. A better understanding of how this emerging generation views financial planning decisions will increase the ability of financial planners to meet the needs of this new base of financial planning clients.

One situational difference millennial clients may bring to the planner is that of the perceived complexity of the financial situation. Some financial problems or situations involving multiple decisions may appear quite complex to the client. Similarly, some problems or situations may seem relatively straightforward and simple. In this research, we investigated the issue of whether the perceived complexity by the client of the financial planning mission may affect the perceived importance of various financial planner characteristics.

The gender of the potential client is another factor that may affect which characteristics are valued more highly than others in evaluating the financial planner. Numerous studies have suggested that gender can be a factor in decision making. The growing number of career-oriented women points to an increasing need for financial planning for them as they seek to build wealth and plan for retirement. This study evaluates the particular characteristics both males and females value in the selection of a financial planner.

The characteristics on which potential clients may evaluate financial planners are divided into two types of cues: instrumental cues and affective cues. Instrumental cues focus primarily on objectively verifiable measures that recognize the professional skills of the service provider, such as certification or advanced degrees. Affective cues tend to be related to impressions of friendliness and caring. Such cues are decision aids consumers may find useful. In the case of professional services such as financial planning, the dichotomy of instrumental cues and affective cues is a common approach for consumers making judgments. In this study, these two types of cues are used with regard to how potential financial planning clients judge planners. Task complexity was manipulated to determine if the perceived complexity of the situation can affect which evaluative cues are considered more important. We then conducted an analysis to determine whether gender has an impact on the type of cues judged more or less important in the selection of a financial planner.

The Growth in Services

The service sector in the economy has grown continuously over the past several decades. Such a trend is indicative of the emerging information economy. In this context, financial services and the growth of financial planning are an integral part of the services economy. Full-time employment in professional and business services has increased 12.5 percent between 2002 and 2007 compared with an overall increase in full-time employment for all industries of 5.2 percent (Bureau of Economic Analysis 2008).

In the case of professional services, a substantial level of expertise is needed to achieve proper certification and standing in the field. Physicians, lawyers, accountants, dentists, and financial planners are all part of this emerging set of professional knowledge workers.

Evaluating Professional Service Providers

In evaluating professional service providers, cues are a common way for customers to make judgments. In early psychology literature, a cue is considered a perceptual stimulus that defines an attribute (Harper and Boring 1948). In physical, or tangible, products such as automobiles or clothing, the color, size, shape, and durability are examples of potentially useful cues that help individuals make evaluative judgments. In the case of professional services, consumers are typically not well informed about how best to evaluate service providers. Which cues, for example, would be the best indicators of a good professional service provider?

The intangible nature of professional services makes evaluation of the service provider inherently difficult for the potential client. For example, a financial planner who is caring and friendly may, because of these characteristics, be perceived in a positive light by potential clients. However, it is quite conceivable that this same service provider may not necessarily have the best technical background or training. Similarly, a very technically competent service provider with extensive training and certifications may provide excellent financial advice. However, if this same highly competent individual is perceived as lacking in interpersonal skills, then potential clients may be unsure about an overall evaluation of the service provider.

The real challenge for the potential client of professional services is to make a good decision with limited information. Is such a decision based on overt characteristics such as friendliness? Or is such a decision based primarily on technical training or academic degrees? Research has shown that people may use multiple cues to help guide decision making. Various taxonomies have been identified to assess professional service providers including: competency versus kindness (Glassman and Glassman 1981), ability versus personality (Swartz and Stephens 1983), and instrumental versus affective (Ben-Sira 1976, 1980; Lovdal and Pearson 1989; Duhan, Johnson, Wilcox, and Harrell 1997). These cue options tend to be in two distinct categories. Researchers have variously called the technical skills cues "competency," "ability," and "instrumental." Alternatively, the second set of cues often used to evaluate professional service providers tends to fall into the friendliness area, which is called "kindness," "personality," or "affective."

The "instrumental" and "affective" cues appear to have the most applicability to financial planning. In evaluating professional service providers, it is common for clients to talk in terms of these two dimensions when discussing the providers. A key question is how we can better understand the circumstances in which the potential clients of professional service providers will use one cue set over another, instrumental cues or affective cues? What situation would cause one person to value personality over specialized training or vice versa? Becuase professional services are inherently complex, this complexity is a useful starting point to more fully understand clients' perceptions.

In the current study, the complexity of the financial planning decision was manipulated to offer some respondents a more complex financial planning decision as the starting point to select a financial planner. The other group of respondents received a less complex situation in which they would need to select a financial planner to help them with a financial plan. We hypothesized that individuals may use different cues in their selection of a financial planner based in large part on the complexity of their financial situation.

Task Complexity

Professional services such as financial planning are inherently highly complex and highly divergent (Shostak 1987). Many different factors can enter into financial plans related to age, perception of risk, value of assets, scope of financial assets, tax implications, and so on. However, financial plans might best be conceptualized along a continuum of low complexity to high complexity. In order to better understand the role of task complexity in affecting how potential clients would evaluate a financial planner, two different financial scenarios were created. A pre-test found that these two scenarios produced significant differences in perceived task complexity.

Perceived task complexity generally increases when decision makers are faced with numerous alternatives. Stated differently, the load of information is greater in more complex scenarios (Payne 1976). One study found that decision makers seek to reduce cognitive strain when confronted with complicated tasks (Bruner 1957). The use of cues in decision making helps simplify the complexity of the task, which then reduces cognitive strain.

In this study, two different scenarios were used to create a high-complexity situation and a low-complexity situation within the context of a financial decision. These scenarios set the stage for helping to identify which cues might be the most valued in a high-complexity setting and which cues might be the most valued in a low-complexity setting. Sixty-three survey respondents were presented a high-complexity scenario and 63 different survey respondents were presented a low-complexity scenario. The scenarios were pre-tested and showed a significant perceived difference in complexity. The scenarios presented to the respondents are as follows:

High-Complexity Decision Scenario, n = 63
"Your grandfather just died and left you $1,000,000 in the form of life insurance and pension benefits. This money has been placed into two accounts yielding low rates of interest pegged to T-bill rates. You would like to invest these funds at a higher rate for your retirement. In addition, your grandfather's estate is valued at well over $5,000,000, so estate taxes will be due, and the pension plan funds will be subject to income tax. The executor of your grandfather's estate advises that severe penalties will arise if the appropriate taxes are not paid on time. You are aware that financial planners can be helpful in such a situation, so you plan to immediately seek one out."

Low-Complexity Decision Scenario, n = 63
"Your grandfather just died and left you a $25,000 life insurance settlement. The insurance company placed this money into an account yielding 2.5 percent interest, and you can access these funds at any time. You would like to invest these funds at a higher rate for your retirement. You are aware that financial planners can be helpful in such a situation, so you plan to seek one out."

Differences in the scenarios are as follows:

• Size of the death benefit ($1,000,000 versus $25,000)
• The number of accounts (two versus one)
• The yield on these accounts (variable versus 2.5 percent fixed)
• Tax issues (estate tax and income tax issues versus no tax issues)
• Possibility of severe tax penalties (high-complexity scenario only)

Sample of Millennials

A sample of young adults, often referred to as millennials, was selected for this study. Survey respondents were upper-level business students at a large Midwestern university. Business graduates have relatively high salaries upon graduation and are generally planning a career in business. They are financially aware and recognize the role of financial planning for their futures. Majors among the respondents included: accounting, finance, marketing, management, and international business.

Findings

Task complexity. In the survey, respondents were asked to rate the importance of various instrumental cues and affective cues in the context of selecting a financial planner. Table 1 lists the mean score for each cue for the high-complexity scenario and the low-complexity scenario. The lower the mean score, the higher the perceived importance.

Table 1: Perceptions of Financial Planner Characteristics:
High and Low Complexity of Financial Planning Scenarios

* (response options: 1= Extremely important; 2 = Important; 3 = Neither important nor unimportant; 4 = Unimportant; 5 = Extremely unimportant)
** indicates significance at < .05
*** further analysis indicates a significant difference between males and females at the < .05 level. More specifically, female respondents considered affective cues significantly more important than males in the low-complexity scenario. There were no gender differences in the high-complexity scenario.

The instrumental cue of "uses the latest financial techniques and models" was perceived as more important in the high-complexity scenario compared with the low-complexity scenario. This finding is statistically significant (p = .041). In addition, the affective cue of "is friendly toward you" was perceived as more important by respondents given the low-complexity scenario than by respondents given the high complexity scenario. This difference is statistically significant (p = .014). Overall, it should be noted that the CFP^® designation as an instrumental cue was the most important cue for both the high-complexity scenario and for the low-complexity scenario. This finding supports the notion that a designation (e.g., CFP^®) carries significant "clout" (Young 2007). In addition, instrumental cues may be more highly valued in general when the potential client is faced with a more complex financial situation.

Gender. The gender of the client may also be a critical factor when assessing the importance of financial planner characteristics. The role of gender is especially important in light of the transformation of gender roles over the past several decades. Traditionally, men were mainly responsible for family finances, but that model is changing. Women now account for about 46 percent of the total labor market, and they are increasingly represented in high-paying management ranks (Carlson 2009). As women develop their careers and obtain higher-paying jobs, they naturally become more involved with household financial decision making. Moreover, there are an increasing number of single-parent households and persons in same-sex relationships where the financial dealings are conducted by a woman. Hence, it is important to understand gender differences with regard to how financial planners are perceived.

Numerous studies examine how men and women have different perceptions of financial issues. For example, in one study women were found more likely than men to be dissatisfied with their current financial situation and were more likely than men to be dissatisfied with their ability to meet long-term financial goals (Hira and Mugenda 2000). Another study set out to test whether men and women accurately perceive their self-efficacy and whether one gender sets more challenging financial goals than the other (Endres, Chowdhury, and Alam 2008). Self-efficacy is defined as one's perceived ability to perform a specific task (e.g., making a complex financial decision). Results suggest that men's self-efficacy was significantly higher than women's self-efficacy and that men set more challenging financial goals. Another study found that women's knowledge of investing was generally lower than their male counterparts' (Goldsmith and Goldsmith 2006).

Additional analysis related to Table 1 revealed that gender differences exist within the task complexity scenarios. More specifically, affective cues were found significantly more important for females in the low-complexity task scenario. This finding is noted in Table 1 with three asterisks. The affective cues of "is friendly toward you," "is caring," and "puts you at ease," are significantly more important for females compared with males at the p = .00, p = .024, and p = .033 levels, respectively. No significant gender differences were found within the high-complexity scenario.

In Table 2, there are three statistically significant differences between females and males relative to the various perceived importance levels of cues used in evaluating financial planners. The instrumental cue of "has advanced training in a specialized field" is perceived by females as more important compared with males (p = .040). In addition, two affective cues were found more important by females compared with males. "Is friendly toward you" (p = .011) and "puts you at ease" (p = .032) were considered more important by females than males.

It is notable again that for both females and males the "holds CFP^® designation" is an important evaluative cue. In Table 1, the CFP^® designation is the most important cue, and in Table 2 it is the most important cue for males and the second-most important cue for females.  

Table 2

Perceptions of Financial Planner Characteristics: Gender Differences

* (response options: 1= Extremely important; 2 = Important; 3 = Neither important nor unimportant; 4 = Unimportant; 5 = Extremely unimportant)
** indicates significance at < .05

In considering these gender-related results, financial planners should realize that certain cues, instrumental and affective, may be more important to women than men. In the case of low-complexity tasks, affective cues are significantly more important to females compared with males. It may be helpful for financial planners to realize that females may value advanced training, friendliness, and being put at ease more highly than males. As financial planners strive to build more effective relationships with clients, they may appreciate the value of understanding how clients rank the importance of these financial planner characteristics.

Recommended Strategies for Financial Planners

The importance of successful client relationships is paramount for financial planners who wish to be more than just order-takers for customers. Building these successful client relationships includes paying close attention to how clients judge the importance of various financial planner characteristics. Below are recommended strategies financial planners may strive for in order to help them attract and maintain a large and satisfied millennial client base.

1. Overall it seems imperative to realize that different cues (or financial planning characteristics) are important to existing and potential clients. Task complexity and gender play a role in what is perceived as important by the potential client.

2. Financial planners should make sure clients are aware that they have advanced training in the field of financial planning. Financial planners who do not possess this characteristic should strongly consider attaining it. This instrumental characteristic is the most important to clients regardless of gender or complexity of the financial planning task.

3. Financial planners should communicate to clients that they use the latest financial techniques and models, especially when clients perceive that the complexity of the services provided are high. One way to communicate this is for the financial planner to disclose the continuing education requirements needed to maintain licenses and designations.

4. Affective cues, such as being friendly toward the client, are important. Affective cues are apparently less important when the perceived complexity is high. However, in the case of low-complexity tasks, females value affective cues more than males do. In scenarios of high-complexity tasks, clients are generally less interested in affective personal skills.

5. Females tend to value a single instrumental cue (e.g., CFP^® designation) and multiple affective cues (e.g., "friendliness toward you" and "puts you at ease") more than males do. Financial planners should be attentive to this when communicating with clients.

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