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At some peril, choices are often made solely on personality rather than the competence of the advisor.
Of course, competence doesn’t necessarily evoke feelings of excitement or delight, but it is essential to give investors confidence that advisors can handle the breadth and depth of issues that influence their wealth. An advisor has to account for each individual investor’s risk tolerance, innate biases, ethics, solution preferences, tax exposure, assets, family construct, and so on. Consequently, they must filter these various components into a strategy that is aligned to their unique goals.
As such, when choosing an advisor, proven intellectual capability and knowledge is paramount. Investors must select an advisor who has the proficiency to be all-in on whatever unique challenge their situation poses.
CFA charterholders strongly align to clients’ interests in demonstrating investment expertise, knowledge, and skills required to address investors’ needs. For example, 54% of clients believe that portfolio management is a required area of expertise for advisors and half also agree that asset allocation and financial plan creation are crucial. These are also the most referenced knowledge areas by CFA charterholders, with a respective 56%, 65%, and 43% of CFA charterholders surveyed.
Among the advisors we surveyed who do not hold the CFA charter, the importance of strategic expertise is underplayed. Just 31% of other wealth practitioners referenced asset allocation as a key insight area for advisers and only 32% referred to portfolio management. When advisors underplay the requisite rigor and investment knowledge required to confidently advise clients, they are unlikely to sustain productive relationships.
For CFA charterholders, the next phase of their professional transformation is about demonstrating their knowledge more broadly. Although private investors will always value core investment expertise, advisors need to highlight the same capacity of engagement on a broader range of issues relating to personal wealth.
CFA charterholders are attuned to clients’ specific knowledge requirements of the future. In the next five years, 69% of CFA charterholders surveyed intend to build further on their tax planning expertise and 60% believe inheritance planning will be requisite for future advisers. This intellectual curiosity and understanding of the wider wealth piece stands them in good stead to deliver a more holistic offer to investors.
Clearly, the true value of working with a financial professional can only be delivered if advisors can inform and enhance the wealth strategy of the client. Advisors need to be the technical experts, approaching the task of investment management strategically.
That’s not to say that personality is not important. Qualities such as clear communication, integrity, and professionalism are highly desirable for clients and are acknowledged by CFA charterholders to be the core attributes for the advisory profession.
These qualities facilitate open dialogue over the many important facets that motivate the individual: their hopes, dreams, fears, and aspirations. They give an advisor greater insight into the client’s requirements and provide the client with confidence in the individual advising them.
But alone, these qualities do not deliver the skills required to effectively service private clients. Personal rapport should not be considered a proxy for emotional intelligence.
The real edge for the modern advisor is evidencing the emotional quotient by investing in a solid grounding in behavioral finance. This goes beyond building relationships and listening carefully to client needs. Premium quality advisors are the ones who can navigate the behavioral impulses and cognitive biases that lead clients to deviate from a sound wealth strategy.
CFA charterholders recognize the significance of this distinction. Personal relationship management is important to them. Indeed, 72% of them believe that it is the factor that leads them to winning the most business.
However, they are also cultivating an understanding of the innate influences that drive decision-making. Over a third of CFA charterholders believe that being a professional expert in behavioral finance is required to be effective, compared to fewer than a quarter of advisors who are not CFA charterholders. Furthermore, 60% of CFA charterholders anticipate that behavioral finance will become more important for advisors in the next five years, compared to just 35% of other advisors in the field.
Advisors who pursue a balance of EQ and IQ in their own professional development are ultimately going to be more successful in developing and delivering the solutions that foster long-term client relationships. These advisors provide wealthy investors with a holistic package, enabling clients to buy the expertise, the ethics, the personality, the qualities, and the professional guarantee.
