Sometimes a cliché is best captured in a picture. On my colleague's phone was a black Bentley, chrome logo glistening in the sun. The car belonged to one of his most successful clients, but it wasn't the presumptive price tag that was jarring. The custom license plate read, "NVSTWME," surrounded by a frame stating, "My other car is a yacht."
Photographic evidence of people's worst assumptions about financial advisers: extreme affluence, simplistic value proposition, garnished with a touch of hubris. Truth is, the majority of people in financial services do not carry themselves with this kind of swagger (or drive Bentleys, for that matter), so the literal content of the image is not what was telling. It was what the image represents: a version of this industry that is primed for disruption. Three such opportunities are exemplified in my friend's photo and applicable to the broader industry:
1. Value confusion. As Americans' decision-making patterns continue to evolve to a digital world, it's naïve to assume
face-to-face meetings remain critical to their investing decisions. That's not to say human advisers provide no value, they just don't provide the value they think they do. This is the core of what I call the empathy gap: An ever-expanding distance between the decision-making priorities of advisers and those of their clients.
2. The mirage of affluence. There are too many seasoned advisers who believe that projecting incredible wealth suggest their incredible investment portfolios got them there. In a world where transparency reigns, clients are beginning to wonder if that fancy car (and supposed yacht) are not the product of investment acumen, but rathe, high hidden fees and salesman's panache — the exact factors that may send them shopping online for financial advice.
3. We sell the dream (to avoid the reality). Financial services has often been the friend of big dreams: the dream of retirement, sending your kids to that great college or buying that second home at the beach. While aspiration always plays a role in financial decision-making, reality plays a bigger one. Today's financial consumers are juggling the complex realities of health care costs, tax changes, multiple sources of income and increasingly diverse financial decisions. The empathy gap rears its head again here. By misunderstanding client priorities, we offer distraction instead of solution.
As an industry, we ignore the warning signs of the empathy gap at our peril: fast-rising threats from nontraditional competitors, increased attention from regulators and, most importantly, an ever-widening demographic drift between financial advisers and clients. Time is not on our side, but we need not be alarmist. A few critical steps can make meaningful shifts from a pre-disruptive position to one of empathic connection.
1. Eat your own cooking. This used to mean investing your own money in the portfolios you recommend to clients (advisers should at least do this). Today, it means much more. Financial advice is about navigating complex decision-making with the support of an objective, educated third party. Yet too many financial advisers don't have an adviser of their own. We have become doctors who don't get annual physicals. Hire an adviser, disclose everything, get on a plan and feel the pain and possibility of making different choices.
2. Update your client intake. Too often the onboarding of new clients has been a mix of charismatic charm and a bit of required compliance data. We cannot empathize with experiences we don't know about, and client disclosure is critical to our understanding their point of view. This depth of connection requires better questions: What are their financial pain points? Where have they found great success in life? What about failure and disappointment? A strategic move from "client onboarding" to "client discovery" makes all the difference.
3. Modernize your services and pricing. Get paid for empathy. Many advisers today are moving to subscription-based pricing models ($x/month) for ongoing connection with their clients. Rather than getting paid for investing, they are getting paid for listening, advising, empathizing and adjusting. This new wave of advisers is finding that clients value fee transparency and the ongoing commitment to communication and responsiveness that such a service model requires.
4. Normalize a standard of care. The industry has relied on client rating systems and other techniques to multiply its best efforts. But as digital service experiences like Amazon Go reach the masses, financial consumers increasingly expect customization, personal attention and individualized advice. Advisers must quantify and build a culture of discipline around reliable standards of care for every client, ensuring those standards are sustainable and empathic for the long run.
As advisers awaken to the breadth of the empathy gap and respond in kind with solutions like those above, we may realize that not only are we on the same side of the table as our clients, but more importantly, we are a part of their story. We went to them and walked in their shoes, and it no longer mattered what chrome logo ornamented the hood of our car.
(More: How technology will alter the role of human advisers in wealth management)
Nick Richtsmeier is chief innovation officer at Trilogy Financial and chief operating officer of its independent registered investment adviser, Trilogy Capital. He can be reached at Nick.Richtsmeier@trilogyfs.com.
