Advisers Need to Focus on Relationship Management, Vanguard Says

As advisers have moved away from commissions to favor fee-based service, their daily focus also should move away from transactions to holistic client relationship management, Vanguard maintains in a new report, “The Evolution of Vanguard Advisor’s Alpha: From Portfolios to People.”

“For the typical adviser, the path to greater client satisfaction and asset growth should lead to an underappreciated destination: relationship management,” Vanguard says. “A focus on relationship management takes time and commitment, and requires advisers to streamline some aspects of financial planning or wealth management and reallocate the time saved to the clients who increasingly demand and value it.”

Investors are more interested in knowing that their adviser is working in their best interest, as well as how they are paid. “This ‘great awakening’ of investors may be one of the most important and disruptive factors affecting the value proposition for advisers in the future,” Vanguard says. Citing data from Cerulli, Vanguard says that advisers earned 45% of their compensation through commissions in 2013. By 2016, that had declined to 32%—and this year it is expected to fall to 23%.

Technology, such as robo advice, will free up advisers’ time from portfolio management so that they can better serve their clients, Vanguard says. “By 2015, as workers harnessed productivity-enhancing technologies, the proportion of the workday spent on advanced tasks such as maintaining relationships and thinking creatively rose to 50%,” Vanguard says. “That figure is sure to rise in the decades ahead. Technology will reduce the time an adviser spends not just on routine administrative tasks but also on much of what advisers have traditionally defined their value proposition around. Whether it is embracing an existing robo-adviser platform, firm-level software or even a single spreadsheet, expect technology to become more pervasive.”

The future will enable advisers to deliver a wider range of advice service to people in a cost effective manner, Vanguard says. Perhaps it will be an embedded advice solutions, such as a target-date fund. It could also be a hybrid advice model where an adviser relies on technology to communicate with clients as well as for portfolio management. Or, it could be traditional wealth management. “Providing a greater variety of advice models enables an adviser to best satisfy the preferences of investors who are likely to become a firm’s wealth management clients of the future,” Vanguard says.

It would also help an advisory practice to build out a team that can facilitate a broader range of advice services and accommodate a larger number of clients. For example, one adviser could conduct the onboarding and initial assessment, another the preparation of a financial plan and a third could help with insurance and estate or tax planning. Furthermore, firms should offer a wide variety of model portfolio solutions.

Trust in the adviser will be the cornerstone of relationship management, Vanguard maintains. A survey the firm conducted found that 94% of clients who highly trust their adviser are extremely likely or likely to refer them to a friend, family member or colleague.

To build this trust, Vanguard says each adviser must take an individual approach. It also helps to let clients know that they are acting in their best interest and that that will deliver on services promised. However, there is also an emotional aspect to the relationship. Another Vanguard survey found that 53% of investors say that the emotional component is the most  important part of their trust in an advisory relationship.

Advisers need to ask their clients about their goals and their families, and to speak with them rather than at them, Vanguard says. Every point of contact with a client should be spent making them feel valued, respected and cared for.

Vanguard’s report can be downloaded here.