Financial advisors act as trusted resources for clients, and by building strong relationships, they play an important role in their clients’ lives and can have a positive impact both in the near term and for generations to come. The foundation of a strong relationship? Financial advisor-client communication.
Why Financial Advisor-Client Communication Is Important
A financial advisor is a trusted resource, so it’s important that they provide timely and relevant communication. Sharing market trends, highlighting new investment opportunities, and communicating proactively builds trust, shows that you care, and helps everybody in the relationship be successful. Clients also have certain expectations about communication with their financial advisors, and even though they might not share those expectations, they do exist.
Challenges Around Financial Advisor-Client Communication
Despite having a wealth of modern tools available, financial advisors still face common challenges when communicating with their clients.
Virtual meetings can be difficult.
According to one survey, 62 percent of financial advisors say that in-person meetings are the most effective form of client communication. However, only 10 percent say this is their primary communication method. The pandemic shifted the prevalence of virtual meetings.
The same survey found that pre-pandemic, no financial advisors surveyed said they had clients that were 100 percent virtual, and now, almost 13 percent have completely virtual clients. Many find virtual communications easier than in-person meetings, but for some, adapting has been difficult.
Clients need customized plans to meet their goals.
Saving for retirement, education, or a second home or trying to generate extra income? Clients must be candid about their income levels, safety net, goals, employer-based retirement plan, and so on. All of this information is relevant to crafting a good plan. Because every client has different needs and expectations, financial advisors must be adaptable. Learning client preferences and the reality of their situation is critical for maintaining a successful relationship, but finding the right balance takes time.
Concepts are complex, and clients have different financial literacy levels.
The financial literacy of clients covers a broad spectrum. The ability to simplify complex concepts to allow clients to understand their options and make informed decisions is an important skill for financial advisors. This is particularly important at the start of the relationship when building the initial financial plan.
It can be overwhelming for clients to absorb so much information in a short period of time, but it’s critical that they understand key concepts, such as:
- Risk and return: Explain the tradeoff between risk and rates of return. Not all investments have the same risks. Some are interest rate-sensitive (bonds), others can be sensitive to macroeconomic challenges (growth stocks), and others are susceptible to other idiosyncratic risks (industry-specific or company-specific, such as oil prices).
- Liquidity: Some investments can be illiquid, coming with significant penalties or discounts if you exit an investment early. Clients should understand how this fits into their long-term plans.
- Taxes: Make sure clients consider the tax implications of their investment strategy and their tax situation when making decisions.
Tips for Successful Financial Advisor-Client Communication
Communicating with clients in a productive, successful, and positive manner can provide value to the client's overall experience. Follow these tips for successful communication:
Develop a communication strategy.
Find the right balance of regularly scheduled communication with all of your clients and reach out to individual clients at least twice a year. Most financial advisors connect quarterly or monthly, and a small percentage connect weekly. Remember that you might need to tailor the frequency for each client depending on their needs. Mix it up between email, phone calls, virtual meetings, and in-person meetings to find the best communication methods for your clients.
React to market changes.
When news headlines make people nervous about their investments, they often seek financial advice. Reassure clients that they should focus on time in the market—not timing the market—and that it’s often more important to stick with their plan during turmoil than make panicked wholesale changes. Be available for check-ins and proactively share helpful information to alleviate concerns, recommend portfolio changes, or just let them know you’re paying attention.
Make sure the information you share is relevant to each individual.
Clients want to see information that is relevant to them, and if you send too much information that doesn’t apply to them, it can erode trust. Curate your communications so that the right info is going to the right people. Some blanket emails are fine, but more personalized communications should be tailored accordingly.
Circumstances change over time, but clients often don’t know what’s important to share, so it’s essential to ask the right questions. Have their financial goals changed? Have revenue streams increased or reduced? Was there an unexpected event that impacted their finances? Find out what’s new in your clients’ lives to provide the best possible investment advice.
If your client doesn’t understand something, you want to know about it so you can educate them and help them make more informed decisions. Encourage questions and ask if they understand after you explain a new concept. Remind clients that it’s OK if they don’t have a deep understanding of every detail—that’s why they hired an expert.
Share resources from Socotra Capital.
Sharing content from trusted sources is a great way to build trust with your clients. For those who have expressed an interest in building passive income, encourage them to read How to Grow a Passive Income Portfolio in Today’s Market.