Are You Delivering the Services Your Clients Want?

Are You Delivering the Services Your Clients Want?

Hollis Walker: This is Away from the Noise, a podcast for financial advisors and their clients. Hello, this is Hollis Walker with Jan Blakeley Holman, director of advisor education at Thornburg Investment Management. Welcome back. Thanks for joining us for another episode of Away from the Noise. Hi, Jan, great to see you.

Jan Blakeley Holman: It’s great seeing you too, Hollis.

Hollis Walker: I understand we’re going to discuss a subject today that will be of particular interest to our advisor audience.

Jan Blakeley Holman: Well, I think it will Hollis. Recently I came across a white paper actually, it’s a research paper, created by CEG Insights. It’s an organization that provides financial advisors with information and intelligence through thought leadership and research. The white paper or the research paper was titled, “Addressing the Gap Between Investors’ Expectations and Advisor Services.” So of course, it jumped out at me. And I found it particularly fascinating because it exposes the difference between client expectations, what clients believe they’re receiving, and what advisors think they’re providing, which is really, really important. The research found that many investors aren’t aware of all the services their advisors offer, and that in many cases, the services they want, they don’t think their advisors provide. To get into this, let’s talk about two functional services that advisors provide practically all their clients: financial planning and investment management.

Hollis Walker: This sounds like it’s going somewhere interesting.

Jan Blakeley Holman: Well, it is to me, Hollis, I hope you enjoy it. Let’s look at financial planning. In the research. 92.3% of investors want financial planning. The advisors in the research reported that they provide financial planning advice 95% of the time. So in other words, from their perspective, they’re doing exactly what the clients are looking for. Unfortunately, in 59% of the time, clients feel like they’re not receiving financial planning.

Hollis Walker: You know, Jan, honestly, I think I’m on the same page. I’m not sure that I feel my financial advisor provides me with financial planning advice. So what does the research say about investment management?

Jan Blakeley Holman: Well, first, let me say something about financial planning advice. And I’m going to say this, again, the adviser needs to be specific, that the questions they’re asking you, and the things you’re doing, as a result of those answers have to do with financial planning. Because sometimes the disconnect is different language or, you know, a client not appreciating, I don’t mean that like, oh, this is wonderful, I mean, understanding exactly what it is they’re getting.

Hollis Walker: So you’re saying that the name, the advisors need to name the service they’re providing, so the client knows what they’re getting?

Jan Blakeley Holman: Absolutely. So on the investment management side, again, maybe the most fundamental service that advisors provide clients, yet the research found that although more than 92% of the clients want to receive investment management, only 73% of them feel like they’re getting that from their advisors. And then what did the advisors say? Well, they say in 98% of the cases that their clients are getting investment management services.

Hollis Walker: Okay, so I might be offending an advisor or two here, but it sounds like maybe the financial advisors are lacking a little bit of humility. I mean, it sounds like they think they’re doing everything right. So Jan, besides the gaps you detail did anything else in the white paper surprise you?

Jan Blakeley Holman: Hollis, to touch on the point you made, which is really important. I don’t know that it’s humility as much as we as advisors because I have been an advisor too, get caught up in what we’re doing. And fail to remember that the people who are coming in to meet with us, who need our help and advice and guidance, aren’t as fluent in what we do as we are so we don’t even bother to start at square one. What else did the research identify? Well, it said that 92.5% of the clients want wealth transfer advice. Now listen to this number, only 17% feel like they’re receiving those services. Now, for some reason, there’s not a percentage of how many advisors believe they’re giving that advice. I don’t know why they didn’t cover that in the survey. But this is frightening to me for three reasons. First of all, we’re in the midst of the Great American wealth transfer, where over $84 trillion will transfer from the silent and baby boomer generations between now and 2045, to Gen X, millennials, Gen, Z, etc, etc. So that’s here, we’re in that right now. Second, to underscore how important this is and how there is such a huge disconnect, Edward Jones and Morning Consult surveyed 2,000 adults in December, and found that even though 70%+ of them said they are comfortable having the wealth transfer discussion, only 27% said they’d had the talk with their heirs. So what’s the problem there? I think they need someone to help facilitate that discussion, i.e., the financial advisor. Finally, advice on wealth transfer is sorely needed by clients. Because of that advisors need to be well versed and focused on the subject, if they want to meet their client’s needs, and fulfill their expectations, and at the same time, grow their businesses. It’s always been true in this industry for financial advisors that the best time to retain existing clients and add new clients is when there’s money in motion. Now is that time.

Hollis Walker: So Jan, what’s the solution to these gaps in communication between advisors and clients? Who’s right? Your thoughts are going to be valuable, I know, but what should the advisor do to remedy this situation? And what can a client ask to make sure they get what they want?

Jan Blakeley Holman: Well, it is a two-sided conversation. I mean, this is a relationship. And here are my suggestions. So for clients, don’t be shy. Tell your advisor exactly what you need in your language. You don’t have to try to figure out how we say that in financial services lingo, they can figure out what you’re talking about. Be specific about the issues you want to discuss. And you need to know that ensuring you get what you need is 50%, your responsibility. Advisors, your clients need to know all the services you offer. Because there is a breadth of services that you provide. I know that most advisors just basically provide financial planning and investment planning services. So how in the world could such a high percentage of clients not know they’re receiving those services? It’s about clarity of communications, I think. You know, it makes me think of the trips I make to the doctor’s office and the dentist’s office. And have you ever noticed those racks on the wall that have all the little pamphlets stuck in there about all the services that you can receive from this professional? You’ve seen that before?

Hollis Walker: Oh, yeah, of course.

Jan Blakeley Holman: Yeah. Well, maybe advisors should do that to advertise your services in reception areas, in your conference rooms and in your offices, and reiterate those services to your clients regularly, when you talk to them in communications you send etc. You also have to make sure that you have the wealth transfer conversation with older prospects and clients and younger prospects and clients because this wealth transfer discussion is coming from both sides. The wealth holding generation, which is often the elder generation needs to have the conversation but the younger folks need to push the discussion too because they need to know where the assets are. They need to know where the plans are. They need to know what kind of insurance there is. Is there long-term care? Is there excess disability if the wealth holders still working?

Hollis Walker: I appreciate that you brought in that report. All of it was fascinating. And last time we were together, we decided we’d spend some of our time of each podcast on the ABCs of investing. We’ll cover other timely topics, but we thought it would be beneficial if we provided our listeners a primer of sorts. So last time we covered A, C, and C. Do you have D and E?

Jan Blakeley Holman: That’s right, Hollis. The ABCs. Well, now we’re on D and E. But in order to make this make sense, I’m going to start with E first, and you’ll be able to see why in a second. And E is for equity, or equities. In all things. Financial equity means ownership. When it comes to financial investments, stocks are equities. Those two words are used interchangeably to describe stocks. When companies go public, they have a couple of key ways of raising capital. They can either issue bonds of stock. If they issue bonds, that represents a loan and the loan is between the investor and the company issuing the bond. Just like all other loans, the bond has a face value, that’s the amount of the bond, an interest rate amount that will be paid on some recurring basis, and a maturity date when the full face value is due to the investor.

Hollis Walker: Okay, I’m still with you.

Jan Blakeley Holman: Okay, good. When a company issues stock, they’re selling shares of ownership in the underlying company, the individual purchasing the shares of stock believes that the company’s value will increase, and that increase in value will be reflected in the stock’s per share price. Now, when it comes to financial assets, stocks are a basic investment. The three basic investments in financial portfolios, cash, bonds, and stocks. Stocks have been around forever. Ownership has been around forever. It has taken different forms. But today, we see it in the financial markets as stock investments. They’re also considered to be one of the best investments for an investor to choose to hedge or outpace inflation. So let me give you some numbers. Over the last 20 years, the Dow Jones Industrial Average, which is an index of 30 stocks that are very well known, has provided investors with an average annualized return of 10.1%. Compare that to the average inflation rate over the same period of 2.51%. That difference, the 7.6% is the average annual return an investor earned over and above inflation. And that’s what’s important. You need to get returns that keep you ahead of rising prices. I’ll make this point: it’s almost impossible to achieve long term goals without having some equities in your portfolio.

Hollis Walker: Well, Jan, that was the most succinct explanation of stocks that I have ever heard.

Jan Blakeley Holman: Really?

Hollis Walker: Yeah, seriously.

Jan Blakeley Holman: That’s great. Well, that leads me to the D in our ABCs, and D stands for dividends. Actually, dividends are a byproduct of investing in stocks. And that’s why I started with equities first. Appreciation is one way stock investments provide investors with return. But companies also have the ability to pay investors per share dividends. And if they do pay dividends, they’re usually paid quarterly. Why would a company pay dividends? Well, to attract more investors, and or to demonstrate that it’s stable and financially sound. I’ve always believed that dividends help clients remain invested while they’re waiting for their stock investments to appreciate. And that’s particularly true when the markets are choppy, or volatile. Dividends give investors a reason to hang in there and to remain invested.

Hollis Walker: It’s like a little present that comes every quarter.

Jan Blakeley Holman: You know what? It’s a big present. And guess what? Often those dividends grow over time. So you have a number of things happening. And this goes back to our compounding discussion, where you have capital appreciation, and the dividends get larger, and those are reinvested. And then you have more money that’s growing and etc, etc. I mean, it’s just a great machine. Those two types of returns, appreciation and dividends, are components of a stock’s total return.

Hollis Walker: That’s all the time we have for today. We’ll pick up with the letter F? D, E, F, next time. I can’t wait to hear what that’s going to be. You’ve been listening to Away from the Noise with me your host Hollis Walker and Jan Blakeley Holman, director of advisor education at Thornburg Investment Management. If you’d like to suggest a topic for us, email us at awayfromthenoise@thornburg.com. If you’d like to hear more episodes of away from the noise, you can find us on Apple, Spotify, Google podcasts or your favorite audio provider, or by visiting us at thornburg.com/podcasts. And Jan can also be found on LinkedIn. If you like us, subscribe, share us on social media and leave us a review. Until next time, thanks for listening.

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