Engagement Is the New Standard for Success in Financial Advisory Practices

For years, the financial advisory industry has been riding the wave of high client satisfaction metrics. And maybe it’s caused some of us to get too complacent.

From my vantage point, advisors are struggling to make progress when it comes to delivering comprehensive advice based on a deep understanding of client needs. It’s not from a lack of will or trying but simply that understanding those needs, and how they are changing, is incredibly difficult. The good news is that this lack of delivery hasn’t resulted in significant attrition for advisors. The bad news is this may be because clients ‘don’t know what they don’t know’ when it comes to forgoing the benefits of truly holistic financial advice.

It is my belief the advice industry has been setting the bar too low when it comes to assessing client sentiment, primarily focusing on key metrics like satisfaction and Net Promoter Scores to evaluate these relationships. While these metrics are helpful (and widely accepted), they are not a panacea for measuring the quality of each client relationship. To raise the bar, client engagement is the new metric by which we should measure the impact advisors are having on their clients.

It’s time for a change.

Why Satisfaction Isn’t Enough

Though it’s certainly helpful to have a sense clients are satisfied, it’s simply not a high enough standard or the best measure for advisors seeking to deepen and strengthen their client relationships. Most of us are satisfied with our barista at Starbucks, with our mechanic or with the guy who mows our lawn. Satisfaction is part of the lexicon when it comes to describing all sorts of services. As a result, the word has lost its weight and original meaning. I would put Net Promoter Score in this same category.

Knowing this, we must assume that when our clients are providing this feedback, they are thinking of all the services with which they are largely satisfied. But do advisors really want to be in the same category as their client’s barista and mechanic? In my opinion, no, because the advisor/client relationship is much deeper and more consequential.

Finding Common Ground  

Instead, we’re calling for a higher standard, one that goes beyond mere satisfaction—and that standard is client engagement.

The problem is there is no universally accepted definition for this important but seemingly abstract concept, especially in the context of financial advice. People across the industry describe and evaluate engagement in different ways, in a variety of contexts.  As an industry, we have failed to rally around a shared vision of what it means.

It’s easy to make the case that something so fluid cannot be measured, but I would disagree. Through years of collecting and analyzing immense amounts of investor data, Absolute Engagement has been able to apply science to the matter and establish a defensible and actionable definition of engagement. We define it as the combined rating of client satisfaction with the advisory relationship and their actual referral behavior. Simply put: Satisfaction + Referral Activity = Client Engagement.

The Return on Client Engagement

By this definition, our research found that only 26% are actually engaged. This number should excite, not intimidate, progressive firms looking to achieve the highest return for themselves and their clients. And that’s because our research makes clear that the tangible return on engaged clients is a worthwhile, defensible pursuit. Engaged clients are more loyal to their advisors, and on average share a larger portion of their assets with them. They are also more likely to understand the value of advice as being separate from portfolio performance. For example, 72% of engaged clients were less likely to be concerned during periods of market volatility, as opposed to 48% of unengaged clients, all during the same time in the markets.

Aside from the benefits for advisors, clients who are engaged equally stand to benefit. They tend to assign higher value to the advice being delivered to them and are generally more confident about their financial futures. Using the Absolute Engagement Client Self-Confidence Index, we determined that 87% of engaged clients felt confident about their finances, versus 66% of unengaged clients. Consider what this can mean for client outcomes in the real world: those who are more confident about the future of their finances tend to make more positive money moves, and avoid riskier impulsive financial decisions, simply because they are acting from a place of calm and assuredness.

Making it Actionable

As we approached our research, it was essential that we ensured this metric could be actionable. In looking at the way clients and advisors exist and work together, we established a clear set of differences between engaged and unengaged clients.

We saw that to drive engagement, it’s important to broaden the scope of the relationship—not just offering investment advice but really seeking to understand a client’s values, personal life and financial goals. Our study showed that 64% of engaged clients believe their advisor provides support beyond money and investments, whereas 32% of unengaged clients indicated they felt the same. By implementing processes that ensure they are maintaining a depth of knowledge and understanding of their clients’ lives, advisors can bring inspiration to the review process and value to each of their client meetings.

Advisors can no longer assume they can meet their clients’ needs through investment advice alone. After all, the average client doesn’t walk into an advisor’s office armed with a robust understanding of their own financial needs, obstacles, desires and worries. They need an advisor who can act as a true partner, and who is committed to building the relationship around their clients’ inputs—not their own assumptions. Great advisors will seek to transcend the most basic service expectations and co-create an experience for each client that is responsive to their needs, concerns, and unique challenges. The rest? Well, they’re destined to remain ‘satisfactory’ in their clients’ estimation, at best.

Julie Littlechild is the Founder and CEO of Absolute Engagement