Research from Morningstar reveals that investors' loyalty to their financial advisors is driven more by emotional reasons than financial returns. Financial Planning reports that the study found that 59 percent of investors cited emotional factors for staying with their advisors, while financial reasons accounted for 42 percent.
The top emotional motivation was discomfort with handling financial issues alone. This was followed by the quality of financial advice and services, a financial reason, and appreciation for the behavioral coaching provided by their advisors, another emotional factor.
Morningstar's findings underscore the importance of the interpersonal relationship between advisors and clients. The study also highlighted that demographics such as age, race, gender, income level, or investable assets did not correlate with these motivations. This suggests that personalization should focus on the individual rather than demographic categories.
Investor satisfaction with advisors has been declining, as shown by a J.D. Power study reporting a significant drop in satisfaction over the past year. Additionally, research from Cerulli Associates and McKinsey indicates that a large percentage of heirs and women change financial advisors after inheriting wealth or losing a spouse.
However, Morningstar suggests that advisors can address both emotional and financial needs by building trust, fostering strong personal relationships through frequent communication, and incorporating behavioral coaching into their practices. This coaching, though not always directly requested, is often a key reason clients remain with their advisors.
Morningstar's research, based on surveys conducted in 2021 and 2022, also identified other reasons for staying with an advisor, including the quality of the advisor-client relationship, communication, and recommendations from friends or family. Financial reasons included specific needs like retirement or tax planning, return performance, and service costs.
Financial Advisor Transitions consults advisors nationwide to explore employment transition options and to preserve and protect their practice in any transition that they make.
