Give your financial adviser clear goals


Commentary: Satisfaction isnt possible unless you set the terms

By Chuck Jaffe, MarketWatch

Last Update: 6:58 PM ET May 11, 2012

BOSTON (MarketWatch) Investors say investment performance is not what drives them to work with a financial adviser. But when performance sours, the investing results supposedly a secondary factor in the hiring decision typically lead to the adviser being fired.

A new study helps show why that is, and leaves investors and consumers a lesson to consider about hiring a broker or financial planner.

The 2012 U.S. Full Service Investor Satisfaction study released Thursday by J.D. Power & Associates found that the publics overall satisfaction with full-service investment firms is basically back to the levels of 2008, before the market tanked during the financial crisis.

But investors are less happy in the three categories which are most critical to their satisfaction their financial adviser, investment performance, and commission/fee structure.

Where things actually have gotten better bringing the overall study numbers in line with the pre-recession levels are in categories like account information and an investment firms Web site.

Advice and consent

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 thats 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 dont actually promise 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% more than before or 20% more than the other guy is going to have problems, because the customer is going to be unhappy the first time performance doesnt 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 didnt make me enough money.

Some of that, he believes, is a survey bias. Ask people the most important factor in a decision, he noted, and they almost always will come up with results or price.

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 doesnt feel that whatever they are getting is the result of the advisers work.

Thats a key lesson for shareholders because it highlights the importance of knowing why you are going to an adviser in the first place.

Lets be clear on this: There is nothing so special in the financial planning business that a consumer cant 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. You dont need those pros either; you can learn whats necessary to fix your own car and get the supplies at the local auto-parts store and you can take care of a leaky faucet or toilet, and get a do-it-yourself video to help you do it right, but 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.

With everything they have invested in a home or a car, they worry that their own deficiencies in doing the basic maintenance and repair jobs will damage the value of what theyve got.

Investor, know thyself

Its the same with financial advisers. The fact that we live in a time where there is plenty of information available for people to do it themselves doesnt mean that most people will take the time and do what is necessary to be good at it.

So when someone makes the decision to work with an adviser, they should know what they are getting, that they are looking for an action plan helping them determine where they are, what the financial destination is and then guidance to get from today to their goals.

If you know what you are looking for and that its 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.

For anyone working with an adviser, setting expectations is crucial, not only on performance but as to how often there will be contact, how investment ideas will be pitched and more. Ultimately, the idea isnt to be satisfied just on performance although the survey numbers show that is essential but to be satisfied on all factors.

The best relationships, said Lo, are the ones where the customer is satisfied with everything, and they are out there, in all market conditions. If someone is managing your money, what they are doing for you is too important to leave much to chance, so working with the adviser to make sure they know what you expect and holding to those expectations will be what leads to a good relationship.

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