What Makes a Good Financial Advisor?

Morningstar conducts annual surveys of investors and advisors, exploring a wide range of topics, including gaining deeper insights into their overall relationships. In our 2023 Voice of the Investor study, we learned that despite a surplus of available information, investors still feel anxiety and a lack of confidence making investment decisions, which leads to a lack of engagement in their portfolio. Working with an advisor generally leads to higher engagement among investors, and that balance of comfort and engagement is exactly what we sought to better understand with our follow-up study, the 2024 Voice of the Advisor.  

This article will share those survey findings and outline our survey methodology for context. For a more comprehensive discussion, watch the webinar, featuring Morningstar’s Joe Agostinelli, Senior Director of Market Research. It’s free and available to stream on demand. 

The survey collected a total of 577 responses between July 8 and Aug. 1, 2024 from financial advisors working with investors across the United States. Financial advisors were required to have a minimum of $10 million in assets under management within their clients’ book of business.   

Quotas were put in place to ensure the overall sample matched the current makeup of the US advisor population across the different distribution channels, including independent broker/dealers, registered investment advisors, wirehouses, insurance broker/dealers and retail bank broker/dealers.  

Advisors often fail to communicate in a way that fully resonates with clients. As highlighted by recent survey results from the FPA and Allianz: "The disconnect may stem from how the information is communicated." This gap can also extend to how advisors articulate the value they bring to their clients.

The advisors we surveyed highlighted these three key offerings as the most important services they bring to clients:

• Manages my investments with expertise, optimizing for growth and risk management  

• Tailors financial plans to my unique needs and goals 

• Makes me feel more secure about my financial future  

Interestingly, clients ranked these offerings as first, fourth, and second, respectively, indicating a slight disconnect in how they perceive their relationship. “Tailors financial plans to my unique needs and goals” is where the largest disparity occurs, with 49% of advisors ranking it in the top three compared to just 29% of clients.

One of those unique needs might be how to approach debt, because 21% of client respondents identified debt management as one of the top three ways advisors add value, but only six percent of advisors felt the same way. 

Debt is a touchy subject, but most advisors discuss it with new clients and include conversations around their debt structure as they create and implement a financial plan. Reducing debt is a common short-term goal, with 38% of investor survey respondents indicating it is a highly prioritized goal over the next three years. Knowing that, a little more focus on reducing a client’s debt as opposed to growing their assets could be a differentiator for advisors seeking new business. 

Bridging the gap between how advisors perceive the value they provide and how clients perceive that value can be effectively managed during the onboarding process and the initial months of the relationship. Advisors highlighted their biggest challenges when onboarding new clients are educating them and building trust.

RIAs face more difficulty in educating clients compared to advisors at other firm types. Interestingly, female advisors across firm types are more likely to cite education as a challenge than male advisors, which may explain why they place more importance on platforms and providers for financial planning, investment management, and research support for the overall success of their practice.

Advisors who focus exclusively on behavioral methods to add value are significantly more likely to struggle with creating trust than those who emphasize financial methods or a mix of both (54% vs. 33%). This highlights the importance of financial acumen in building trust—clients need more than confidence or peace of mind; they need something concrete to point to.

Explaining concepts like time horizons, diversification, and fees may take time, but it’s essential for managing expectations and fostering trust. Helping clients understand the importance of these elements and linking them to their unique goals and concerns lays a strong foundation for onboarding. This not only educates clients but also instills greater confidence in their financial futures—two key values for both advisors and clients.

By enhancing the onboarding process through education and building trust, you can further engage your clients in the investment strategy discussions and thought process. This deeper engagement not only fosters a stronger relationship but also sets the stage for more meaningful interactions through the advisory process.

Earlier this year we scored retail investors on an engagement scale from 0-100, with zero representing no engagement and 100 representing full engagement with their portfolios based on the components of the index. Eighty-two percent of them scored between 50 and 100. We observed investor engagement is higher if they work with a financial advisor. Furthermore, the more actively an advisor engages in shaping an investor's strategy, the higher the investor's satisfaction tends to be.  

The advisors we surveyed told us they spend about 50% of their time on client-focused activities, like identifying specific life goals, customizing an investment strategy, and establishing risk tolerance. The other 50% is split between operational activities, like marketing and networking, and investment research and due diligence.

The survey also revealed that while differentiating their practice isn't a major concern for most advisors, those who spend a substantial amount of time with their clients (67% or more) are significantly less worried about it compared to their peers (8% versus 15%). Shifting the balance toward more client-focused activities is challenging but crucial for strengthening the long-term client-advisor relationship and emphasizing the aspects of the advisor's value proposition that matter most to clients.

Morningstar’s investor and advisor surveys of 2024 taught us that investors and advisors want to spend more time with each other. Engagement, satisfaction, and trust all increase for the client when the advisor has more opportunity to demonstrate their value. To make that time, advisors need to find ways to streamline more rote and operational activities. Zeroing in on key aspects that educate and make clients feel more secure during the onboarding process is one clear way. However, there’s more nuance to these findings than we could fit into this article.  

On Oct. 3, 2024, Morningstar hosted a Voice of the Advisor webinar. The findings and implications of the survey were discussed in greater detail by Morningstar’s Joe Agostinelli and Thomas Aviles. It’s free to watch and available on demand.