Charles Jaffe: Why investors need to be in sync with their financial advisers
BY CHARLES JAFFE Market Watch
Wednesday, May 16, 2012
5/16/12 at 2:59 AM
Investors typically say that investment performance is not what drives them to seek out and work with a financial adviser.
If and when performance sours, however, it's the investing results - supposedly a secondary factor in the hiring decision - that typically leads to the adviser being fired.
A new study helps show why that is, and leaves investors and consumers a lesson to consider before they decide to go with a broker or financial planner.
The 2012 U.S. Full Service Investor Satisfaction study by J.D. Power & Associates found that the public's overall satisfaction with full-service investment firms is basically back to the levels of 2008, before the market tanked during the financial crisis. That said, the study shows that investors are less happy in the three categories that are most critical to customer satisfaction - their financial adviser, investment performance and commission/fee structure. Where things have gotten better - bringing the overall study numbers in line with the pre-recession levels - are in categories like account information and an investment firm's website.
"When you just look at the numbers, you think everything has returned to normal, that people are as satisfied with their investment firm as they were in 2008," said David Lo, director of investment services at J.D. Power. "When you look at the factors individually, you find that's not really true. People are more satisfied with the little things but not as happy with the factors they consider the most important."
Part of what is interesting in the J.D. Power research is that the top firms have more customers attributing performance to the adviser.
Good advisers don't actually promise raw performance. Their job is to develop a plan, to equip customers with the right tools so that they can execute the plan, and to provide the emotional discipline necessary to see the whole thing through when market conditions are nerve-wracking and make the average person want to cut and run.
"An adviser who is promising people 'Switch to me and I will make you 15 percent more than before or 20 percent more than the other guy' is going to have problems, because the customer is going to be unhappy the first time performance doesn't reach that level," Lo said. "So a good adviser tells you what they can do for you, the services they can provide, and they help you determine the performance you need and how to go about getting it."
But Lo noted that when people leave their adviser, the top reason is almost always that the counselor "didn't make me enough money."
He thinks the bigger issue is that the investors who are firing their advisers are the ones who attribute their results to something besides the advice they are getting. It might be that the adviser is executing their suggestions, or that the market simply is rewarding everyone, but the customer doesn't feel that whatever they are getting is the result of the adviser's work.
That's a key lesson for shareholders because it highlights the importance of knowing why you are going to an adviser in the first place.
Let's be clear on this: There is nothing so special in the financial planning business that a consumer can't do it themselves. If you want to go learn the right things, educate yourself, make use of free resources and take responsibility for the outcome, a planner or broker is not necessary.
But think of this like hiring an auto mechanic or a plumber. The majority of people want or need help precisely because they lack the skill set to be comfortable that they will do the job right.
"If you know what you are looking for - and that it's about more than performance - when you start looking to work with an adviser, I suspect you will be much happier with what you get," Lo said.
Original Print Headline: Why you need to be in sync with your adviser
Chuck Jaffe is senior columnist for MarketWatch. He can be reached at firstname.lastname@example.org:email@example.com or at Box 70, Cohasset, MA 02025-0070.