Financial planners will find an open lane when focusing on client values

If the protesting and unrest following George Floyd’s tragic death taught us anything it is that people are passionately driven by emotions and personal values.

And, in the broadest sense, that kind of overt human sentiment should be recognized and acknowledged as a message to the financial planning community that most people’s priorities, even when working with a financial adviser, don’t start or stop at the investment portfolio.

In the context of financial planning, the point, which is underscored in a new research report from the Money Management Institute and consulting firm Aon, is that there is a growing divide between what clients want and what a lot of financial advisers are providing.

For instance, according to the research, 76% of clients seek to incorporate at least one of their values into their investment portfolio. But when asked how they think clients feel about values-based investing, only 44% of advisers said they think it is a priority to clients.

“The financial planning relationship is evolving and now being directed by the clients,” said Craig Pfeiffer, president and chief executive at MMI. “Clients used to just seek investment advice, but now they’re seeking financial advice.”

The research goes beyond the general concept of environmental, social and governance issues to identify where clients who might not intentionally identify as socially conscious and environmentally sensitive consumers to see where their values rank.

The survey of 1,500 high-net-worth individuals that identified the values most important to clients started with family, country and human rights.

The gradual decline in value priorities followed to social justice, global environmental protection, sustainable corporate practices, climate solutions, diversity and inclusion, religion, corporate governance, down to arts and culture.

And while the priority ranking for clients ranged from 9.4 out of 10 for family to 6.6 for arts and culture, the advisers’ perception of client values was generally out of sync.

Advisers under the age of 45, when asked to rank client values on the same scale, followed a similar pattern but with less variation. The under-45 advisers perceived clients would rank family as the highest value at 8.6 and ranked arts and culture lowest at 7.6.

The real separation is seen when measuring how advisers over age 55 perceive client values. The older advisers ranked family highest at 8.5, and country at 7.6, then ranked religion third highest at 7.3.

Sustainable corporate practices ranked fourth highest at 6.5, and climate solutions ranked lowest among the older advisers at 5.3.

“The gap is that advisers don’t perceive clients are interested in some of these values, but the data says otherwise, and that advisers are not seeing a significant interest among the vast majority of clients,” said David Lo, head of U.S. client insight at Aon.

Advisers need to only look at the record-level flows into ESG funds for an indication of what investors are craving.

During the first three months of this year, which included the S&P 500’s 30% drop from mid-February to late March, sustainable funds attracted $45.6 billion worth of net inflows, while mutual funds overall suffered outflows of $384.7 billion.

“Clients are placing a lot of importance on talking about values, but less than half of advisers think that’s important,” said Lo. “Some advisers might not be comfortable talking about values because it can involve talking about things like religion and politics.”


While that might be true, avoidance is not that answer.

“The megatrend shows advisers transitioning from portfolio managers to relationship managers,” he said. “Successful traits are advisers getting into how clients think and feel.”

And the payoff for those advisers embracing what some might consider the softer side of financial planning is measurable.

The MMI/Aon report shows that when clients feel their values are reflected in their investment portfolios the overall satisfaction level with the financial planning experience is at 77%, compared to 66% when values are not reflected in the investment portfolio.

Satisfaction with the financial plan is at 73% when values are reflected, versus 56% when they are not.

And the client satisfaction with the annual review reaches 80% when clients feel their values are considered, compared to 65% when they are not.

A focus on client values can also be calculated to an adviser’s bottom line.

When values are factored in, 38% of clients acknowledge “an exceptional value” for the advisory fees they are paying, versus 18% when values are not factored in.

And of those clients who feel their values are considered, 4% responded that they expect more for the fees they pay, compared to 10% for clients who do not feel their values are considered by the financial adviser.

In other words, the time is now for advisers to start tapping into the softer side of client relations because that’s where the business is heading.