By Neal Van Zutphen, CFP®
Fiduciary and regulatory standards for financial planners vary based on certification and licensure. In each case, certification and licensing require the planner to pass exams on the rules, regulations, and technical aspects necessary to conduct business. Thus, practicing financial planners have achieved and demonstrated a base level of technical expertise. But there's a gap in our training and testing: it's in social and emotional intelligence, understanding human motivations, emotions, and the development of interpersonal communication skills.
Financial planners must possess technical expertise in tax and estate planning, risk management, investment management, and finance. Consumers expect to see these core competencies in planners. But consumers also seek client-centered relationships. While technical expertise is critical to successful plan design, if a planner has little or no ability to establish a personal rapport or connection with the client, plan implementation and compliance suffer. And client failure to implement and comply with recommended changes sets the stage for an unsuccessful planning engagement.
It is the author's opinion that financial planners are becoming confidants, counselors, and change agents. Consumer need and demand for client-centered relationships means a demand for advisors to place greater focus on, and develop, their interpersonal communication skills. In this sense, interpersonal communication skills matter more than technical expertise.
Every year, MainStay Investments conducts a survey to assess the expectations and needs of investors. Its 2006 Across Generations study surveyed 1,512 individuals between the ages of 27 and 83, with at least $250,000 in investable assets, and covering four different age groups: GenXers (born between 1965 and 1979), Late Baby Boomers (1956–1964), Early Baby Boomers (1946–1955), and Seniors (1945–1923).
The 2006 survey revealed the following insights: The aging baby boomer generation is seeking out advisors and planners to help them make the transition into retirement. Investors want advisors with technical expertise and—more important—a genuine, caring attitude. In fact, investors want long-term relationships they can rely on in good or bad times. According to the survey, 85 percent of the investing public wants advisors who instill a feeling of trust and are willing to work to strengthen that trust throughout the counseling relationship. According to the MainStay report, "Advisors need to rely on interpersonal and counseling skills to forge deeper relationships with their existing clients and cultivate new ones with potential clients."
The interpretation of the survey results is that technically excellent advisors lacking interpersonal communication skills and abilities to establish emotional resonance (Goleman 41–45) and personal connections will struggle to retain existing clients as well as attract new clients.
Significance for Financial Advisors
The survey results are important because they point out the changing demands and needs of consumers. The results validate advisors' need to develop their counseling skills and increase their understanding of human motivation, emotion, and interpersonal communication skills in order to meet the needs of investors.
Investors are shunning transaction-based relationships. A transaction-based relationship is a commodity, a contractual relationship lasting as long as transactions continue, potentially fraught with conflicts of interest. The survey results indicate that investors want advisors who will take an interest in personal concerns such as preparing for retirement and caring for elderly parents. Investors feel uncertain about the future. They worry about whether they have enough money to maintain their standard of living during retirement. Client-centered financial planners take the time to deal with these concerns.
Valid Arguments, But…
Critics of establishing client-centered relationships could argue that their job is to manage the money, execute the plan, underwrite the insurance or get the estate planning completed, and that all clients want is to fix specific problems. Critics could argue that dealing with the client's emotions and other softer issues is too difficult and time consuming.
These arguments are valid; for many clients, a transaction-based relationship is sufficient. But this type of practice is difficult to sustain and becomes less rewarding as commission rates continue to fall under competitive pricing pressures. Even stalwarts of the transaction-based brokerage business are redirecting their marketing campaigns to tout a client-centered approach. As commission rates have fallen and discount brokerage firms have gained market share, the transaction-based brokerage firms have needed to reinvent their service mix in order to retain their remaining client base and gain new clients.
Even do-it-yourselfers and transaction-focused clients will begin to ask questions and their counseling needs will grow. "Most of us went into financial planning to deal with numbers, not emotions, yet our profession finds itself helping our clients and society define what they feel and believe about money" (Parks and Pullen 48). Transaction-based advisors will need to remove from their prospect list 85 percent of the 70 million-plus baby boomers with money to invest because 85 percent of today's investors are seeking client-centered relationships.
How Much Communication?
There is little opposition to the idea that good communication skills are important and that advisors want to understand clients' goals and objectives. What is in contention is to what degree an advisor should pursue discovery conversations, and how to accomplish this discovery process efficiently (Pullen 32).
The primary reasons for plan failure are failed interpersonal communications and failure to understand client motivations and emotions (Lee 62). The planner did not invest enough time in collaboration, making certain to draw out emotional blocks that prevent a change in client behavior. In other words, the plans were technically correct, but failed the plan efficacy test, which is implementation and compliance. Pullen (32) states that when clients feel a caring, concerned connection with their advisors, the communication loop is wide open and clients collaborate.
When it comes to plan efficacy in the financial planning field, one may draw parallels to the medical profession, of which Goleman writes, "The U.S. licensing exam for medicine includes an assessment of a doctor's ability to establish rapport and communicate with patients.…The more satisfied the patients, the better they could recall the physician's instructions and the greater their compliance. Impaired communication—rather than the actual number of mishaps—largely predicted that a given physician would be sued for malpractice" (254–255).
Why the Shift in Consumer Needs?
The MainStay survey identifies investors' needs and desires, but what is not fully clear is the reason for the shift that has occurred. One possible reason is the dispersion of the family support system—for example, adult children living in one state while the parents live in another. Furthermore, Goleman states, "In 2003 single-person households became the most common living arrangement in the United States."
Moreover, Americans are working longer hours and taking fewer vacations, and "34 percent of those on vacation check in with their office so much that they come back as stressed—or more so—than they were when they left" (Goleman 8).
Kornblum states, "Americans have a third fewer close friends and confidants than just two decades ago—another sign that people may be living lonelier, more isolated lives than in the past…research has linked social isolation and loneliness to mental and physical illness."
A recent self-rating survey of character strengths revealed that American adults ranked "self-regulation and prudence" first and third lowest on a scale of 1 to 24. The highest-ranked strength was kindness (Peterson 154). Self-regulation is "regulating what one feels and does; being disciplined," controlling one's appetites and emotions. Prudence is "being careful about one's choices; not taking undue risks; not saying or doing things that might later be regretted" (Peterson 144).
The stress, lack of family support, and lack of close friends may be negatively affecting investors' character strengths of self-regulation and prudence. This survey suggests that individuals are recognizing weaknesses in themselves that pertain directly to the services financial planners with interpersonal communication skills can provide, which would allow planners to become part of the socioeconomic support system individuals need to lead more complete, fulfilling lives. Financial planners are becoming confidants, counselors, and life coaches, filling the gap left by a transient, disconnected and stressed society.
The evidence and research suggest that interpersonal skills matter more than technical expertise when it comes to forging successful financial plans and client relationships. According to MainStay's 2006 survey, 85 percent of the population wants planners who are knowledgeable, skilled, and actually care beyond the transaction. They want advisors who will work to strengthen their relationship bonds over time. Americans are lonelier and have fewer close friends and confidants (Kornblum), and they are turning to their advisors and planners to fill this gap. Planners who connect with their clients at the emotional level, and develop a relationship of mutual trust, experience greater success in plan design, implementation, and compliance (Pullen, Goleman). Planners who do not connect, who do not possess strong interpersonal communication skills, increase their risk of lawsuits (Goleman 254–255).
Since plan failures lead to lost revenues and potential lawsuits, it would seem logical for advisors to seek additional training and education sufficient to meet the demands of their practice and clientele. Perhaps the most compelling economic reason is meeting the demands and needs of 85 percent of the investing population (MainStay). Clients need an objective outside observer and advisor who can help them by clarifying their goals and objectives, mapping out prudent financial decisions, and establishing systems that support positive client behaviors.
Neal Van Zutphen, CFP®, is an owner/partner of a fee-for-service financial planning and investment advisory firm in Mesa, Arizona.
Goleman, Daniel. Social Intelligence. New York: Bantam Books, 2006.
Kornblum, Janet. "Study: 25% of Americans Have No One to Confide In." USA Today June 23, 2006. Accessed April 7, 2007: http://web.ebscohost.com/ehost/detail?vid=4&hid=101&sid=ba20dc0c-e280-435c-b2e8-c9a99486399epercent40sessionmgr106.
Lee, Shelley A. 2001. "Why Do Financial Plans Fail?" Journal of Financial Planning 14, 6: 60–67.
MainStay Investments. "Eighty-Five Percent of Investors Want More than Solid Returns from Advisors, According to MainStay Investments Survey." December 4, 2006. Accessed April 7, 2007: http://www.nylim.com/MainStayfunds/0,2058,20_1007659_12010462∼2,00.html.[LINK]
Parks, Kathleen S., and Courtney Pullen. 2006. "Dealing with Internal and External Conflict." Journal of Financial Planning 19, 12: 48–50.
Peterson, Christopher. A Primer in Positive Psychology. New York: Oxford UP, 2006.
Pullen, Courtney. 2002. "The Art of Connection." Journal of Financial Planning 15, 6: 32–34.