Findings Underscore Need for True Goals-Based Wealth Management Approach
OAKS, Pa., July 18, 2019 /PRNewswire/ -- New research collected from surveys conducted by SEI (SEIC) reveals that advisors – not just investors – can be affected by behavioral biases. Advisors ranked "overconfidence," the tendency to overestimate their skills and accuracy, as the top behavior (26%) that affects their decision-making, and "regret avoidance" comes in at a close second (21%). Although advisors are aware of these biases and others, opportunity exists to better manage these behaviors in order to help deliver better results for clients.
"Advisors are human, too. Recognizing their own biases and taking proactive steps to keep them in check will foster trust and open dialogue with clients, which is essential to an advisor's business success in any market environment," said John Anderson, Managing Director and Head of Practice Management Solutions at Independent Advisor Solutions at SEI.
Biases are just one aspect to consider in the advisor-client relationship. In addition to differences in clients' and advisors' expected behaviors during times of market volatility, the study revealed disconnects in the perceptions and discussions around risk. Risk profiling questions should be worded carefully to assess the client's attitudes without introducing both advisor and investor biases. Client perceptions of risk are often driven by emotions and can be easily misunderstood or discounted by advisors who typically take a strictly rational approach. Measuring risk can be complex and not intuitive for most investors, highlighting a discrepancy between how advisors and clients view risk.
"It's important for advisors to understand risk along two dimensions: market risk and shortfall risk. By shifting the client's focus from benchmark performance to what it means if they cannot retire at 65 years old, the client and advisor can avoid knee-jerk reactions to short-term market movements, and instead focus on the end-game with full transparency," says J. Womack, Managing Director of Investment Solutions at Independent Advisor Solutions. "By implementing a goals-based wealth management framework, these challenges can be overcome."
The research also showed that "goals-based" may be used too liberally. A majority of advisors (59%) believe they are implementing a goals-based framework, with nearly all (86%) stating they align individual portfolios with individual goals. However, more than half (52%) of advisors manage only one or two portfolios per client, whereas a true goals-based wealth management approach builds multiple portfolios – each aligning to an individual goal.
In a true goals-based wealth management framework, traditional advisor-driven wealth management is replaced with co-planning and ongoing client-advisor engagement, supported by technology. Placing the client at the center of the conversation with the advisor serving as coach is vital, as research shows an average 150-basis-point positive impact on portfolio performance1.
"Coaching Through Biases—Yours and Your Clients" covers the study's full findings and offers steps for advisors to take in implementing co-planning strategies and a full goals-based wealth management approach.
SEI Financial Advisor Survey: Incorporated 608 responses from our 2019 SEI Financial Advisor Survey, conducted in April 2019, to better understand how advisors assess risk tolerance, align portfolios with client goals and help manage client behavior.
Investor Survey: SEI, in partnership with Phoenix Marketing International, surveyed 1,000 affluent U.S. households in March 2019 to learn more about their behavior in volatile markets. After filtering out self-directed investors, analysis is based on 653 surveys, comprised of 143 emerging affluent households ($100,000 to $249,999 in investable assets); 337 mass affluent households ($250,000 to $999,999 in investable assets); and 173 high-net-worth households ($1,000,000 to $4,999,999 in investable assets). Phoenix Marketing International is not affiliated with SEI or its subsidiaries.
1 The Value of Advice What Investors Think, What Advisors Think, and How Everyone Can Get on the Same Page
About Independent Advisor Solutions by SEI
Independent Advisor Solutions by SEI provides independent financial advisors with wealth management services through outsourced investment strategies, administration and technology services, and practice management programs. It is through these services that SEI helps advisors save time, grow revenues, and differentiate themselves in the market. With a history of financial strength, stability, and transparency, Independent Advisor Solutions has been serving the independent financial advisor market for more than 25 years, has 7,400 advisors who work with SEI, and $65.6 billion in advisors' assets under management (as of March 31, 2019). Independent Advisor Solutions is a strategic business unit of SEI. For more information, visit seic.com/advisors.
About SEI's Asset Management Distribution Team
SEI's Asset Management Distribution Team provides customized strategic partnerships that enable open-architecture investment solutions aligned to end-investors' goals. The group supports leading financial service intermediaries across the globe, including North America, Europe and Asia, and creates a distinct end-client offering by implementing a goals-based advice framework that combines SEI's pioneered behavioral finance approach with the client's proprietary advice platform. SEI's Asset Management Distribution Team is a part of the company's Private Banking business unit. For more information, visit seic.com/amd.
After 50 years in business, SEI (SEIC) remains a leading global provider of investment processing, investment management, and investment operations solutions that help corporations, financial institutions, financial advisors, and ultra-high-net-worth families create and manage wealth. As of March 31, 2019, through its subsidiaries and partnerships in which the company has a significant interest, SEI manages, advises or administers $945 billion in hedge, private equity, mutual fund and pooled or separately managed assets, including $332 billion in assets under management and $609 billion in client assets under administration. For more information, visit seic.com.