Over the past 10 years, the wealth management industry has undergone a transformational change in the way it delivers value to clients.
First, there was a move from commoditized, investment-based advice to more comprehensive and holistic advice. Now, as technology continues to threaten the overall value of technical knowledge, there is an increasing emphasis on the human side of financial advice. McKinsey & Company affirmed this trend in a 2020 report, predicting that the movement will only continue to grow until 2030.
“Advisors are evolving from traditional investment managers to integrated life and wealth coaches, guiding clients through a variety of disciplines – including banking, health and longevity, tax planning and wealth management. As the industry shifts from risk-based portfolio construction to results-based planning, registered investment advisors will need to adapt their recruiting and training strategies accordingly.
In this new reality a key but underserved role has emerged: the Chief Conductor. This position aims to deepen advisors' understanding of customer behaviors, biases and decision-making processes, with the dual goals of increasing customer satisfaction and driving organic growth. Let's examine the multifaceted impact a CBO can have on clients and VNRs, and why their presence will be essential to the prosperity of the wealth management sector in the next decade.
Understanding customer behavior
A core task at the heart of a CBO's responsibilities is helping clients and their financial advisors recognize and change negative behavioral patterns and cognitive biases. A CBO can provide effective and sustainable methods for clients to adopt new positive habits. Why is this important? Research from vanguard finds that behavioral training can increase net investor returns by as much as 1% to 2%, a significant increase that underscores the potential value of CBO and is likely to satisfy the client.
As customer demographic profiles become younger, understanding these behavioral dynamics becomes increasingly important. Younger clients, especially Gen Y and Gen Z, demand more from their advisors, seeking enhanced services that reflect their unique needs. Loyalty notes that this demographic tsunami means that these groups, which make up 42% of the US population, will play a key role in the growth, valuation and long-term success of RIAs.
According to The Morning Starclients are increasingly valuing their advisors for the emotional support they provide, especially when making sound decisions about their money. In response, CBOs have been tasked with designing training programs and developing resources within RIAs to equip both clients and advisors to master the human side of money.
Elevating the customer experience through technology
In addition to providing emotional support and behavioral coaching, CBOs are instrumental in using technology to improve the customer experience. Modern RIAs increasingly rely on sophisticated tools like personalized dashboards to engage with clients and guide their decision making. However, these tools can fail to create the desired impact without thoughtful and behaviorally informed design.
A well-designed client interface should do more than just display financial data and investment performance. It should motivate customers to take meaningful action to improve their financial results. Whether it's encouraging clients to adjust their savings rate, review their estate plan, or track their progress toward long-term goals, the right technology can facilitate more productive conversations between advisors and clients.
CBOs must work closely with their technology teams to ensure that customer-facing tools are designed with behavioral insights in mind. For example, what does the customer see when they log into their dashboard? Does it inspire them to take action and change their behavior, ultimately advancing and improving their financial results and goals? This approach can help facilitate better conversations, deepen relationships and ensure customers are using their money to finance the life they want to live.
The future of advice is human-centric
A shift is underway, and traditional investment and portfolio management strategies are no longer sufficient to differentiate VNRs from their forward-thinking competition. Increasingly, success will depend on an advisor's ability to deliver value related to the human side of advice.
This change underscores the importance of educating customers about their behaviors and helping them understand why they make certain financial decisions. CBOs are uniquely positioned to lead this charge, ensuring that clients not only have insight into their behavior, but also have the tools and support they need to make lasting and positive change.
After all, clients want more than just financial expertise – they want a trusted partner who understands their values, goals and aspirations. CBOs will play a critical role in fostering these relationships, guiding clients to maximize their wealth and quality of life. By doing so, RIAs can position themselves for long-term growth, improved client retention, and a stronger competitive advantage.
Brendan Frazier is the Chief Conductor at Consulting RFG.