Advisors can differentiate themselves from the competition by positioning themselves as wealth managers and behavioural coaches who provide discipline and experience.

Financial advisors have the power to make a significant impact on their clients’ financial well-being. However, quantifying that value can be a challenging task.

The advisory industry is evolving, and the compensation structure has shifted greatly from commissions-based to fee-based models. By positioning themselves as wealth managers and behavioural coaches who provide discipline and experience, advisors can differentiate themselves from the competition and add meaningful value compared with the average investor experience. That can lead to increased client retention, referrals and, ultimately, a thriving practice.

Embracing and implementing relationship-based services such as financial planning can not only enhance clients’ outcomes but also boost a practice’s growth.

More than 20 years ago, The Vanguard Group Inc. began studying the impact of broadening advisors’ value creation beyond investment performance to include wealth management, tax efficiency and behavioural coaching. The findings, called Advisor’s Alpha, outline how advisors can add meaningful value to clients’ investment outcomes.

Embracing these four principles this new year creates the potential to amplify the value advisors drive for clients and, in turn, help strengthen their practices.

1. Building strong relationships

By taking the time to understand clients’ unique financial goals, risk tolerance and concerns, advisors can tailor their services to meet specific needs.

This personalized approach fosters trust and loyalty, leading to long-term client relationships and referrals. Remember, clients value advisors they trust, and building that trust is crucial to success.

2. Behavioural coaching

As humans, we are prone to emotional reactions, especially during market volatility.

Advisors can guide clients through these challenging times, helping them stay disciplined and focused on long-term goals. By providing objective advice and helping clients avoid impulsive decisions, advisors can add significant value and enhance their investment experience.

3. Portfolio construction and asset allocation

Many investors neglect the crucial process of determining their asset-allocation strategy, which is essential for long-term investment success.

By helping clients understand the historical risk-reward relationships between asset classes and developing a well-considered investment strategy, advisors can serve as an emotional anchor during market volatility and help clients stay focused on long-term goals. All investing is subject to risk, including the possible loss of the money invested. Asset allocation doesn’t ensure a profit or protect against a loss.

4. Tax-efficient strategies

Taxes are a major consideration for many clients, and tax management is an important way advisors can demonstrate their value.

By helping clients understand the trade-offs between index funds and actively managed funds, tax-efficient rebalancing, asset location, tax-loss harvesting, tax-efficient spending and giving, advisors can add significant value.

Fran Kinniry is principal and head of Vanguard Investment Advisory Research Center in Chester Springs, Pa.

Read the article in The Globe and Mail: These four principles will help advisors differentiate their practices in 2024

Publication date: February 2024

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