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Let’s start with a thought experiment.
Name a client who went through your entire process from beginning to end completing everything on time without ever needing a reminder or follow-up — someone who didn't need to be reminded to send in their documents, someone who didn't need an email reminder to schedule an estate planning meeting, or need a friendly nudge to follow-through on your advice to start saving an extra $500/month.
This client has nerves of steel and never flinches when their accounts are plummeting because the world around them is collapsing.
Finding this client is about as common as finding a fund manager who consistently outperforms the market.
This is the “behavior gap” (or the “knowing-doing” gap).
Information alone isn’t sufficient. Telling your client what to do doesn’t always yield results.
Your clients need you and your team to nudge them to execute the plan.
The perfect plan is useless in the absence of execution. The most valuable service you provide is getting someone to change their behavior to execute the plan or helping them stick to the plan without letting their emotions derail their future.
But can we quantify it?
Quantifying the value of behavioral coaching
The increased awareness and interest in behavioral finance has shined a light on the fact that behavioral coaching is valuable when working with clients.
In fact, there have been numerous studies conducted with the goal of quantifying the value of an advisor. We’ve had Morningstar’s “Mind The Gap,” Vanguard’s “Advisor Alpha,” and Russell Investment’s “Value Of An Advisor” studies.
In each of these studies, the top "value-add" derived from working with an advisor boils down to the behavioral coaching element. It's worded differently in each study, but the most valuable thing an advisor does is help clients behave the way they are supposed to.
Yet, the data shows that most advisors don't actively promote this value:
- 83% don't include information about personal coaching or life planning in promotional or marketing materials; and
- 72% don't discuss the role of coach or counselor during an initial contact.
If it’s the most valuable component of our work, should we actively communicate this value to our prospective clients?
Hey Mr. Client, if you want to retire in 5 years, you've come to the right place. We'll build a plan to get you there and show you how to invest. More importantly, though, I help you do the things you need to do and avoid the things you shouldn't!
Think about these dynamics from the vantage point of another industry: personal training.
Ask someone why they want a personal trainer and the first thing they will say is: "I want to lose 20 pounds. And I need someone to show me the workout and nutrition plan to get me there."
Here is what they won't say: "I want to go to a personal trainer so that I can actually get out of bed in the morning when my alarm goes off and to make sure I do a few extra reps when I'm tired."
But ask any personal trainer the value they provide their clients, and they'll tell you it's accountability and getting people to do the things they don't want to do on their own.
What clients want versus what clients need
There's a difference between what clients want and what they need.
The personal training client wants someone to help them lose 20 pounds so they have the energy to play with their kids and not feel exhausted.
What they need is someone to help change their behavior and stick to the plan that will get them there.
As an advisor, you know exactly what clients need. But what do clients want?
If they want someone to act as a behavioral coach, then you should broadcast that you’re the best behavioral coach around.
Fortunately, Morningstar conducted a research study to identify the attributes that clients value most when working with an advisor.
Unfortunately, it clearly revealed that financial advice clients see the behavioral elements in the same light as personal training clients.
Two of the 15 attributes respondents could choose from were of the behavioral variety:
- "Helps me stay in control of my emotions"
- "Acts as a coach/mentor to keep me on track"
These two attributes registered as 13th and 15th on the list. (And, according to the researchers at Morningstar, "Helps me stay in control of my emotions" was a distant #15!)
Clients say they want someone to help them achieve their financial goals. What they need is someone to change their behavior and follow-through with what they need to do.
Delivering behavioral coaching: Give them what they want and slip in what they need
How do we reconcile this situation where clients don't want what they need the most?
We take a page out of the parenting playbook in the chapter, "How To Get Kids To Eat Their Vegetables."
Put broccoli on a child's plate and they won't touch it. You have to find ways to slip broccoli in without them noticing. You put spinach in the smoothie.
If you've never had a smoothie and added spinach, it's truly a fascinating experiment. No matter how much spinach you pile into the blender, you simply can't taste it. But it's still packed with all of the health benefits and nutrients.
Give them what they want and slip in what they need.
Here are a few practical examples (And, I’m not even going to mention keeping someone from selling when the markets down because it’s the most obvious):
- Form a vivid and crystallized vision of their goals and values. Help bridge the gap between their current and future selves.
- Write out and agree to plans that will govern your future actions when you’re in an emotional state.
Here's the only draw-back to that approach: The benefits are concealed and never made known.
How can we effectively bring awareness to the fact that massive value is being delivered whether the client wants it or not?
Three insights for communicating the value of behavioral coaching
There are three things to know about effectively communicating the value of behavioral coaching:
- Evaluate your purpose;
- Timing is everything; and
- Focus on framing.
Evaluate your purpose
Ask yourself what you’re trying to accomplish by broadcasting your value as a behavioral coach.
Are you trying to convey the value to prospective clients as a reason to hire you or do you want to show existing clients another way you provide value for the fees they’re paying?
Your primary focus when getting a prospective client to hire you should be on delivering the result they want rather than the value you provide.
Communicate your services tailored to what clients want and not what they need. And, you’ll never have a prospective client walk in saying they want someone to help them manage their behavior.
As for existing clients, if you’re delivering the results they want, then justifying your fees will rarely be an issue.
Back to the personal trainer example for a second. If the personal trainer’s client lost 20 pounds and had boundless energy when playing with their kids, do you think they ever complain about fees?
However, if you like to quantify and justify your fees, here are two ways to do it most effectively.
Timing is everything
Think about it like the lane control feature on new cars.
When you're driving on the interstate and your car starts drifting into the other lane while you're daydreaming about Roth conversion strategies, new cars nudge you back into your own lane.
Or, if you're coming up too fast on a car in front of you, it will gently slow you down so that you don't get dangerously close.
People buy cars for a lot of reasons. But, ultimately, one of the primary reasons you buy a car is to get from point A to point B.
You can get from point A to point B without lane control. In fact, all lane control does is act as a mechanism to protect you against your own mistakes. Looked at through that lens, lane control isn't valuable.
Until it is. Until you feel the lane control system pull you back into your lane that you had drifted out of. Or until you feel the brake applied and look up to see you were a lot closer to the car in front of you than you thought.
In that moment, the value of lane control is on full display. But you can't appreciate and understand the value until you need it.
Behavioral coaching acts the same way. As human beings, we don't think we need help. Until we do.
Highlight the value of behavioral coaching at the point in time where its value is on full display.
For example, when the market drops 40% and you talk the client off the ledge (or all the work you've done has prevented them from even getting close to the edge) and then rebounds (much like it did in March of 2020), use that as a tangible example of your value.
Use it as a teaching moment to point out to the client how much better off having made that one decision to stick to the plan you worked on together.
Turn it into a dollar figure. If they had $1,000,000 and it dropped 40%, it would have been $600,000. But they stuck to the plan. They were able to ride the wave back up and it's now back to $1,000,000. That's a $400,000 decision.
Regardless of your fee structure, you've made them more money than they'll ever pay you.
Focus on framing
There's another crucial element to effectively conveying value. It was discovered in the Morningstar study mentioned above where clients identified "Helps me stay in control of my emotions" as the least valuable attribute.
Morningstar conducted a series of follow-up surveys with the participants where they switched up the wording of the attribute. As it turns out, the way it was framed made a big difference in how clients perceived the value.
"Helps me stay in control of my emotions" ranked dead last. But "Helps me protect my portfolio from excessive emotional reactions (e.g., panic-selling during downturns)" moved it all the way up to 9th.
The way you frame and deliver the message impacts value perception. It's hard to see the benefit of someone who keeps your emotions in check. It's easy to see the value in protecting your portfolio.
No one wants a "behavioral coach." According to the study, no one wants someone who "helps me stay in control of my emotions."
But most people understand and embrace "accountability." They want someone who can, "make it easier to do the things they need to do to accomplish their financial goals."
The value of an advisor continues to shift towards behavioral coaching
As the profession continues to evolve and the value of an advisor shifts towards the ability to guide clients through the process, unearth the values and emotions, and change their behavior for the better, the focus on behavioral coaching will intensify.
More research studies will be commissioned verifying that behavioral coaching and management is the most valuable service we provide.
But, until clients start asking for someone to change their behavior, stay focused on what they want and slip in what you know they need.
Brendan Frazier is the founder of Wired Planning, the host of The Human Side of Money podcast, and one of Investopedia’s Top 100 Financial Advisors. He helps financial advisors around the world apply behavioral and psychological principles in their business to enhance client outcomes and ignite growth.
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
