To stay competitive and relevant, financial advisers must do much more for clients than manage investment portfolios. Advisers must demonstrate long-term value by serving as a trusted sounding board and coach, offering guidance on all financial decisions affecting clients and their families.
How can investors identify a competent adviser who can provide top service? A variety of qualities and capabilities differentiate high-quality advisers from the pack. These include:
1. Know what clients need, before and after retirement
While online investment platforms have given investors far more access to investment products and information, investors still need advisers to help them make sense of data — and to identify strategies and products that align with their goals and risk tolerance.
A top adviser takes the time to understand a client’s financial and life goals, routines, expenses, personality and investment preferences before investing their assets. One introductory meeting or a risk tolerance questionnaire isn’t enough to gauge a client’s emotions, decision-making process, or short- and long-term investment goals.
It is much more beneficial for clients to gradually pursue investment opportunities over the course of the first few months of the adviser-client relationship, rather than dumping all of their investable cash into the market at once.
When clients are saving money for retirement or a specific financial goal, such as purchasing a new home, advisers can use goals-based investing methodologies to determine how to allocate assets and how long to stay in the stock market. This accumulation period offers advisers the opportunity to educate investors about not only investment products and strategies, but also about risk management.
A good adviser dedicates time to reach out to clients during market shocks to discuss what’s happening, the difference in price volatility on the upside and downside, and determine what works best for them. This practice not only helps advisers understand a client’s risk tolerance, but also prevents clients from potentially missing out on returns on the upside.
The capability to service clients in this way requires advisers to possess the scale and efficient workflows, as well as dedication, for keeping in touch with clients even when they aren’t experiencing high account activity or major life events.
2. Pay close attention to cash flow
A client’s cash flow must also be closely monitored. Cash-flow positive clients, such as high-earning corporate executives, can afford to take much more risk than a client whose cash flow is neutral or negative, since it is much more difficult to manage long-term assets if a client might need to tap their portfolio for cash needs.
Moreover, clients with high positive cash-flows benefit from minimal cash balances in their portfolios because they should be consistently investing new cash. During market downturns, investors who are investing regularly can buy at lower prices and allow volatility to work in their favor.
During periods of extreme volatility, like the start of the pandemic last year, effective cash management during better times can help clients cope. If a client begins panicking amid a sharp selloff, they will likely calm down if their adviser reminds them that they were able to raise two years’ worth of cash flow when the market was up.
As part of the financial-planning process, a good adviser will work with each client to craft an individual cash policy, so that every client has a better chance of maintaining sufficient cash reserves, regardless of market performance.
3. Be a counselor and coach during tough market conditions
Clients have a higher probability of achieving investment performance if they are able to remain invested over the long-term, especially in volatile markets. Advisers who schedule regular check-ins with clients during market declines can help these clients — even those with low-risk tolerance — alter their behavior so that they are less likely to make rash (and typically poorly timed) decisions to sell.
Educating investors about their portfolio holdings can also make it easier for them to stay in the market during tough periods. If investors understand the assets in which they are invested, or feel some personal connection to them, they are more likely to stick with them. For example, an investor who is aware of the environmental, social, and governance (ESG) positions in their portfolio and the long-term objectives of these companies would likely care much more about holding onto those stocks if the market drops.
Nevertheless, if a change in strategy or approach is necessary, a good adviser will have the scale and flexibility to pivot investment allocations to match the economic outlook.
4. Offer support clients didn’t know they needed
Advisers with robust operations teams have the human capital and expertise to help clients in more areas of their financial lives. If an advisory firm makes a point of having operations or support team members assist advisers by regularly reviewing transactions in a client’s account, they have a better chance of identifying spending patterns that advisers or clients could miss — and figuring out how to improve outcomes for clients using that data.
For example, if operations/support staff notice that a client is paying several hundred dollars a month on a storage unit, the adviser can ask the client about this expense. We have found clients paying rent on empty storage units for which they had forgotten to cancel the contracts.
Advisers also can provide value by helping clients with lines of credit or to move cash around quickly. For example, if a client is looking to purchase a new home, the adviser can facilitate a short-term line of credit — or assume correspondence with parties involved in real estate transactions.
Fritz Glasser and Meghan Railey are CEO and CFO, respectively, of Optas Capital.