7 ways financial advisers can communicate value and build stronger client relationships

Clear communication turns expertise into client trust.

By Sheryl Rowling, Editorial Director, Morningstar

As an adviser, you can be truly diligent for your clients: getting good returns, structuring investments for tax efficiency, providing financial and tax planning, and doing your best to help clients reach their goals. In other words, you could be doing the greatest job for your clients. Unfortunately, if your clients don’t understand what you’re doing, you are not getting credit for any of it.

Think of your client conversations. When you explain financial concepts or strategies to your clients, do they understand the value you’re adding, or do they hear Charlie Brown’s teacher saying, “Blah, blah, blah?”

Your clients should fully understand the work you’re doing for them. Let’s discuss seven ways your communication with clients can help solidify client relationships.

1) Clients Don’t Buy Complexity

Many advisers think that expertise creates value. However, clients only appreciate that value if they understand it.

For example, explaining how you calculate the ideal amount of Roth conversion for the end of the year is good. What’s better is if the client understands why the Roth conversion is beneficial to them. “It makes sense to pay tax at today’s historically low levels to avoid paying tax later at higher rates.”

2) Every Recommendation Needs a ‘Why’

Explaining a sophisticated strategy to a client is a dead end if you can’t convey why they should do it. In my practice, I spend a lot of time determining what goals are important to a client before bombarding them with possible strategic tools. Once I know what they want, it’s easier and better to explain one targeted strategy than to pontificate on all the others that don’t apply.

For example, I have a client who wants to help his daughter with regular monthly income. He is also charitably inclined and wants to save money on taxes. I could talk to him about transferring appreciated securities each month or hiring her in his business. But because I determined the best fit for him is a charitable remainder trust, that is the only strategy I explained to him. I put it in words he could understand: Use highly appreciated securities, don’t pay tax on the gain, get a tax deduction up front, and provide his daughter with monthly income for life. He was excited about this. I don’t think it would have gone so well if I had explained every other possible alternative.

3) Stop Trying to Impress Clients

Clients come to you assuming that you are knowledgeable. Talking in technical jargon does not impress your clients—it leaves them confused and wondering why they hired you in the first place. The smartest adviser in the room is not necessarily the one who knows the most; it’s the one who can explain a complicated strategy so clearly that the client can repeat it to their spouse over dinner.

4. Good Explanations Create Confidence

Clients don’t remember tax code sections or standard deviation numbers. They remember concepts like, “We’re converting this amount now so you never have to pay taxes on the principal or growth in the future.” Or, “You’ll make more money with tax-free-interest municipal bonds than paying taxes on corporate bonds.”

5) Good Explanations Prevent Mistakes

When clients don’t understand recommendations, they delay decisions, ignore advice, panic during downturns, and call repeatedly in crisis.

Alan M. Rothstein, CPA, PFS, and a financial adviser at Siena Private Wealth in the US, finds estate planning especially challenging for clients. When explaining why an A-B trust might be beneficial, he breaks it down into an understandable concept: “An ‘I love you’ will is great until one of you passes away. Then, the surviving spouse can change your will to his or her preferences.”

Understanding changes bad behavior and encourages good behavior.

6) Good Explanations Build Referrals

Clients don’t refer an adviser to friends because “she knows Code section 162(a).” They make referrals because “she always has our best interests at heart and explains everything so clearly.”

7) AI Makes Explanations More Valuable

Artificial intelligence can recite tax rules or provide investment statistics. It can’t explain what any of it means to your client. That’s where you come in. Not only can you sift through what’s relevant and what isn’t to your client, but you can also clarify what applies to your client and why.

In an age when information is available any time and any place, the adviser who can translate complexity into relevant understanding might have the greatest competitive advantage of all.

Since its original publication, this piece may have been edited to reflect the regulatory requirements of regions outside of the country it was originally published in. This document is issued by Morningstar Investment Management Australia Limited (ABN 54 071 808 501, AFS Licence No. 228986) (‘Morningstar’). Morningstar is the Responsible Entity and issuer of interests in the Morningstar investment funds referred to in this report. © Copyright of this document is owned by Morningstar and any related bodies corporate that are involved in the document’s creation. As such the document, or any part of it, should not be copied, reproduced, scanned or embodied in any other document or distributed to another party without the prior written consent of Morningstar. The information provided is for general use only. In compiling this document, Morningstar has relied on information and data supplied by third parties including information providers (such as Standard and Poor’s, MSCI, Barclays, FTSE). Whilst all reasonable care has been taken to ensure the accuracy of information provided, neither Morningstar nor its third parties accept responsibility for any inaccuracy or for investment decisions or any other actions taken by any person on the basis or context of the information included. Past performance is not a reliable indicator of future performance. Morningstar does not guarantee the performance of any investment or the return of capital. Morningstar warns that (a) Morningstar has not considered any individual person’s objectives, financial situation or particular needs, and (b) individuals should seek advice and consider whether the advice is appropriate in light of their goals, objectives and current situation. Refer to our Financial Services Guide (FSG) for more information at morningstarinvestments.com.au/fsg. Before making any decision about whether to invest in a financial product, individuals should obtain and consider the disclosure document. For a copy of the relevant disclosure document, please contact our Adviser Solutions Team on 02 9276 4550.