It’s Complicated: Exploring the Advisor-Client Relationship

The core issue underlying this discussion is that investors have their own thoughts about investment decisions that are influenced by a range of individual characteristics that cannot be captured through rational probabilities and odds regarding decision outcomes. Financial advisors have the unique responsibility to guide people into making better financial decisions. They can accomplish this through a deeper understanding of their client, thereby building trust in the investment management and financial planning relationship.

To help advisors forge deeper, longer-lasting and more compatible relationships with their clients, CLS Investments set about delving deep into the advisor-client dynamic. We hired the consulting firm Harms and Arreola LLC to sit down with a focus group of advisors to explore their most challenging situations and openly explore what might be causing various disconnects, from both sides. Our intent was to identify various psychological and behavioral characteristics, but more importantly, to begin to interpret them. In doing so, our hope was that the advisors would begin to notice certain patterns and markers that would help them put themselves in the clients' shoes. Fiduciary advisors profess to sit on the same side of the table as their clients, and are to be commended for this. Now we are asking them to think on the same side of the table as well. No easy task, but the initial findings have proven eye-opening.

In March and April, we convened a series of three 2.5-hour sessions with 14 advisors. To understand these dynamics, the first step is to take the advisor's perspective into account. Drawing on their experience, the aim was to explore how personal motivation and emotional traits may factor into investor behavior. We asked the advisors to discuss personal experiences of unsuccessful client relationships and then reflect on and talk through them with the group. The group listened, and offered candid thoughts about these situations.

Participants were also asked to recount times when they successfully intervened with clients to avoid or reverse self-sabotaging behavior, and what motivating emotional factors had to be addressed in order to do so. The expert facilitator asked the advisors to identify root-level fears, needs, values and sources of self-worth that might be contributing factors in each scenario. This was the critical phase of the focus group, as it allowed for an exploration of the subconscious factors that clients may not be aware were contributing to their actions, but advisors could intuit. These deeply motivating emotional factors were then clustered and focused to highlight those that might be especially potent and influential in clients' decision making.

Suffice to say, the candid conversation was eye-opening and deeply impactful. The advisors who participated reflected on new insights and increased understanding of their clients. One might say it was therapeutic.

In the next installment of this series, we'll explore some of the scenarios that the advisors discussed and their root causes. Names will be omitted, and certain details altered to obscure identities, but the readers of this series will undoubtedly relate to the various scenarios recounted by the participants. In the third installment, we'll look at the client's perspective of the dynamics at play, sitting down with them and looking through their lens.

All of this will culminate in a comprehensive white paper for advisors that, if it serves its intended purpose, will enlighten the reader and offer a useful tool for incorporating into client relationship building, and client service, going forward.

— Read A Walk Through Richard Thaler's Mind on ThinkAdvisor.