The Psychology of Retirement Income: From Saving to Spending

Are you lost in the retirement consumption puzzle?

 

The narrative of a miserly, Scrooge-like figure hoarding his wealth for years instead of enjoying his retirement might seem unbelievable—but unfortunately, it isn’t relegated only to fiction. It’s a cold reality for many retirees.

Although most retirees’ stories aren’t as dramatic as Scrooge’s, it’s not uncommon for retirees to have more than enough to live comfortably for the rest of their lives but still think a vacation is out of the question. In fact, a number of retirees actually experience a sharp decrease in spending and increase in savings in retirement.

According to the Life Cycle Hypothesis, this shouldn’t need to happen. A retiree who is financially prepared for retirement should keep a consistent income in retirement, and her overall consumption should not change. So why does this conundrum—known as the retirement consumption puzzle—happen, and what can we do about it?

Who Is Struggling to Spend Their Retirement Income?

About 25% of retirees fall into the camp of people who decrease spending during retirement. So although this doesn’t impact a majority of retirees, it’s still a meaningful number, and it’s concerning to see so many people not enjoying the fruits of their labor.

Moreover, research suggests this problem may worsen. Researchers found that the issue was most pronounced with individuals who use their own savings for retirement income—whereas people with guaranteed sources of income, such as annuities, Social Security, and pensions, were more likely to spend their income.

Thus, as more retirees (in some cases unwillingly) use financial accounts for their retirement savings, the group of “decrease spenders” may grow.

Why Do People Have Trouble Shifting From a Saving to Spending Mindset?

The idea of a person hoarding their money in retirement is not new, but researchers still haven’t been able to pinpoint the exact cause. There are plenty of theories, though—some with more support than others.

One line of thinking posits that people simply don’t need to spend as much in retirement. For example, when people retire, they may experience a drop in work-related expenses. They may be able to spend more time doing things they had to pay for in the past—now making meals at home or mowing their own lawn—and searching for the best deals for their purchases. And they may pay off their mortgage, thus decreasing their expenses.

Another line of thought points to more psychological reasons behind a change in spending patterns.

Before retirement, a person may be more susceptible to present bias (the tendency to focus more on the present situation at the expense of long-term planning) because their future labour income is uncertain, and they don’t yet feel an ownership of that money. That uncertainty gives them the flexibility to think things like, “I’ll work more hours next month to make up for this trip,” or “My boss will cough up that bonus soon.”

However, after retirement, they are on a fixed income and the money they are spending is coming from their own pocket. This shift triggers loss aversion—that is, the desire to avoid losses outweighs the desire to experience gains. In retirement, we know that overspending today will result in a sure loss in future consumption. In a world where that future you is 85 years old and unable to work, that future loss looms much larger than an extra extravagance today.

This bias may be further aggravated by the fact that though your future retirement income is certain, your future expenses are uncertain. These stressors may push retirees to remedy preretirement overconsumption, thus prompting them to spend less.

How to Manage Retirement Spending Woes

Each of these theories has some merit, but none of them completely solve the retirement consumption puzzle. I believe that there is no one culprit behind the retirement consumption puzzle because no one retiree is the same.

For example, for Scrooge, the loss aversion theory may fit the bill. He became so preoccupied with the dollar amount he has that he ended up drastically underspending in retirement. But because every retiree is different, and different explanations may ring true based on their personal circumstances, retirees may benefit from taking stock of their retirement spending.

This exercise may help you understand if your spending is lining up with your retirement funds and needs. In some cases, that might mean that not spending all of your monthly retirement allocation is “OK.”

Step 0 is to gauge your financial affairs and have a clear understanding of how much you can spend. Assuming Step 0 is complete, here are three ways to diagnose if you have a retirement underspending problem:

  1. Refer back to your financial goals and life values (and if your financial goal was to retire on time, it’s time to set new ones). Consider: Are you meeting your financial goals given your current spending? Are you upholding your life values? If your life value is to experience new cultures, is your current spending allowing you to do that?
  2. Try tracking your spending using an online tool that breaks down spending by category. It’s ideal to do this before you retire, but not essential. On a quarterly basis, check your overall spending and take note of any categories where your spending patterns have changed. Do these changes align with your financial goals? Did your spending on eating out suddenly drop, even though you love trying new cuisines with friends?
  3. Take a moment to recognize your emotions when spending your retirement income. (Research finds that retirees who underspend are more likely to be worriers.) Are you constantly pinching pennies and afraid to spend?

The Pieces to the Retirement Income Puzzle

If you fall into the underspending camp, research suggests that people using guaranteed income sources are more willing to spend their income.

Although the causes of the relationship between annuitising and spending are still up in the air, there are a couple of theories.

For example, maybe people with an annuity feel they have more of a “license to spend” because they know they will always have money coming in. Or, maybe this phenomenon relates to how retirees think of their payments: If a payment comes from an annuity, it may feel like it’s someone else’s money they are spending (akin to labor income they earned before retirement). Since it’s not coming out of their own pocket, they may not be as prone to loss aversion and thus more at liberty to spend.

If you don’t want to take the leap to guaranteed income sources, try reframing your retirement income as a paycheck that someone else is paying you.

You can also try refocusing on your financial goals and life values. Put your goals and/or values on a Post-it note and stick it on your fridge, put them in your wallet, or add them to the notes app on your phone. Constant reminders of why you need to spend money—whether it’s to buy a condo near your grandchildren or to book that trip to Italy to taste authentic Italian cuisine—can be the nudge you need to make sure you make the most of your retirement.

Although not spending enough money in retirement may not be a universal problem, it does represent a huge, missed opportunity for the retirees in question. It’s important to remember that this is the money you’ve spent years toiling over and protecting. Now, during a long and happy retirement, is the time to put that money and free time to good use, funnelling both resources into your version of a life well-lived.

 

 

 

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.

During Another Meme Stock Rally, Here’s Why I’m Investing Like It’s the Stone Age

Modern personal finance requires an ancient approach.

 

If you are not an extremely online person, you may have missed the recent Reddit post that kicked off another meme stock frenzy this week.

Even if you missed the latest hubbub, new technology has indeed brought investors more options for both what we invest in as well as how we invest in them. From flashy new investments like crypto to online trading apps that make investing faster and easier than ever, it can feel like the best time to be an investor.

Yet, I stand before you an investing Luddite. Why? Because as much as I’d like to think of myself as someone with sophisticated investment abilities, I’m working with the same hardware as my ancient predecessors, and I cannot deny the truth: Our brains are ill-equipped for such an exciting investing landscape.

To illustrate this, let’s look at what I might face during a meme stock rally.

Within moments of picking up my phone, I open Reddit and discover others are clamouring to buy the stock du jour. I see stories of people who previously invested in the stock and hit it big, and I pull up the current stock price and watch its meteoric rise. Suddenly, I’m hooked, and after a few taps on my phone, I find myself the (not so) proud owner of a meme stock.

All too swiftly, I have made an investment decision I didn’t really want to make, thanks to my cognitive biases—what we call mental shortcuts when they lead us astray.

  • For one, my interest was piqued by all the other people excited about it. This tendency to go with the crowd is called herding behaviour.
  • For another, I saw a lot of good news about this stock (both through anecdotes and through share price history), so I projected that recent success onto my future thanks to the availability heuristic.
  • Finally, I fell prey to action bias, which tells me that I need to “do something” in moments of excitement or I might regret it.

Our brains work this way for a reason. It was beneficial to our ancestors to be able to make quick decisions on little information. But when it comes to investing, making quick decisions with little information can cause us to make mistakes—especially when we are increasingly able to invest a lot of money with little effort.

And research supports that making good investing decisions can be difficult in the face of these new investment opportunities. For example, investors who use online trading platforms tended to make more trades and hold their investments for a shorter time, both of which can eat away at returns. We also found that investors’ motivations for investing in trendy assets like cryptocurrency are often driven by the desire to chase after returns like those they see in the news—another behaviour that amplifies losses.

What we see, then, is that although technological advances bring many benefits to investors, they also bring us many challenges by feeding into behaviours that cost us money.

How I Invest Like It’s the Stone Age

In the past, the amount of time and effort required to invest protected against our behavioural biases. To an extent, it forced us to slow down and rethink our knee-jerk reactions. But as technology has lowered these barriers, we must put in place our own guardrails to help us make good decisions.

To that end, I like to think back to the Stone Age when I’m investing. Though I have no desire to eschew Wi-Fi or electricity, I can learn a lot about executing long-term plans from that time. So, after I’ve decided on a financial plan, I turn to the Stone Age to help me stick with it and reach my financial goals.

  1. I don’t read market news daily. Though knowledge is power, too much of it can distract me from my long-term plans. In the Stone Age, news took a long time to reach you, so only important information eventually got to you. Now, the important stuff is harder to suss out amid the stream of information we receive. By limiting the market media I consume, I’m doing the same thing: avoiding the noisy, daily ups and downs and staying focused on the big picture. This means that I may miss out on even knowing something like a meme stock rally is happening until it has long passed.
  2. I remain skeptical of strangers’ stories. It’s all too easy for people to lie online, and it’s even easier for us to forget that. We are more connected to strangers than ever before and can feel ties to people we’ve never even spoken to. But historically, it was uncommon to interact with strangers and even more unlikely to trust their word quickly. Therefore, I approach others’ stories about investing success with skepticism. My skepticism helps give perspective; even if what they say is true, I won’t necessarily repeat their success by investing like them, which helps me stay focused on my plan and not theirs.
  3. I do things slowly. I love convenience as much as anyone, but sometimes a little friction is warranted. If I were trying to change my plans in the Stone Age, it wouldn’t be as simple as a few taps on my phone while lying on the couch. When something is more difficult or takes longer, we have time to reflect and consider what we really want to do. For me, this means I don’t allow myself to make changes to my investments on my phone, so I at least have some buffer to consider whether I actually want to change my investments.

The cognitive biases we face when investing today have been with humans for millennia, so they won’t be going anywhere anytime soon. But by understanding how we can create our own tools to counteract them, we can still invest well and reach our financial goals.

 

 

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.

Adviser-to-client template: April 2024

For financial advisers to use with clients. This document is intended to support your service proposition to clients. It is produced by our investment writers with a deliberately light tone and structure. However, these are guidance paragraphs only. It is not guaranteed to meet the expectations of regulators or your internal compliance requirements. If you wish to remove or amend any wording, you are free to do so. However, please bear in mind that you are ultimately responsible for the accuracy and relevance of your communications to clients. 

 

Dear client, 

Given developments in the market, I felt it was timely to update you on where matters stand regarding your portfolio.  

It has generally been a positive time for investors, with stocks especially doing well globally. That said, you may have seen a recent market setback, albeit subtle, with sentiment moving from positive back to a state of temporary worry. This is perfectly normal and setbacks are expected after a period of strength, especially given events in the Middle East doing little to calm investor fears. However, arguably the biggest change of late has been the latest inflation figures which carried some surprises. As a reminder, inflation is important because it is a key influence of interest rates. High inflation equals higher interest rates, which equals lower market sentiment; all things being equal.  

Latest updates from the Australia, US and Europe 

  • In Australia, annual inflation is now at 3.6%, which is much lower than a year ago but is still higher than markets expected and above where the Reserve Bank of Australia (RBA) wants it. Interest rate cuts probable, but not to the same size or speed as previously expected. 
  • US inflation readings were also hotter than expected, rising to the highest level for six months and above forecasts. This is a bigger concern, with some tipping that the Federal Reserve may need to increase rates rather than cut. 
  • As an outlier, Europe anticipates a more positive setting. The central bank left rates unchanged at their latest policy meeting and it could be that they move first with cuts during the middle of the year after taming inflation.   

What does all this mean for your portfolio?  

We avoid the guessing game of where inflation and interest rates might go next, as the evidence of economists predicting it correctly is so poor. But we do watch for unwarranted overreactions and extreme valuations, creating risks and opportunities.  

Our general position is to use any periods of volatility to your advantage, where sensible. Research shows that the average investor gives up anywhere between 7% to 41% of their yearly total returns due to bad buy/sell timing decisions1, so we want to stop this. If anything, we want to do the opposite through good decision making.  

Periods of volatility can rightfully cause some nerves among investors, but this is all part and parcel of the investing journey. By calibrating risk and keeping a healthy mix of selected equities and fixed income, as your portfolio has, we are well-placed to ride out the current uncertainty and harness advantages in the current landscape.  

Relating this to the inflation story, if inflation persists, we have assets poised for success, including exposure to value stocks. Conversely, if inflation reverts to its target and remains stable, other assets we hold such as government bonds and a broader range of stocks will also do well.  

While it’s crucial to mitigate risks, we remain of the view that this can be done without sacrificing growth. Successful investing demands planning, discipline and resilience. Our priority has consistently been to tailor your portfolio to match your risk tolerance and long-term goals. We remain on this path. By staying well-informed, upholding a diversified portfolio and adhering to sound financial planning principles, we can steadily advance towards your objectives.  

Next steps 

We do not recommend any actions resulting from the above update. Your portfolio is still well positioned for long-term wealth generation and should continue to serve its purpose. 

That said, we are always open to dialogue on the long-term potential of the assets we hold, so please reach out to us if you have concerns. Meanwhile, we remain vigilant of unfolding events and will promptly notify you if any matters demand your attention. 

Regards, 
Adviser 
 

Important Information 

As noted previously, this document is intended to support your service proposition to clients and the commentary does not constitute investment, legal, tax or other advice and is supplied for information purposes only. 

This information 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. 

Past performance is not a reliable indicator of future performance. To the extent the information contains general advice it has been prepared without reference to an investor’s objectives, financial situation or needs. 

Refer to our Financial Services Guide (FSG) for more information at morningstarinvestments.com.au/fsg. 

Investors should consider the advice in light of these matters and if applicable the relevant Product Disclosure Statement before making any decision to invest. 

 


[1] Morningstar’s Mind the Gap report is available here: https://www.morningstar.com/en-uk/lp/mind-the-gap. It finds that globally, investors lose money due to behavioural errors. The 7-41% numbers are cited as “Gap as % of Total Returns” from the 2023 report in Exhibit 4. It covers Australia, Hong Kong, UK, Ireland, Luxembourg and Singapore.

 

 


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.

 

Today Is the Best Time to Check on Your Financial Health

Two easy solutions to help you get started.

 

It’s a lie we’ve all told ourselves: “I’ll get to it tomorrow.”

But “tomorrow” never seems to come, and inertia is often to blame.

Inertia is our tendency to choose to do nothing when faced with a decision. The strength of inertia can keep us from addressing issues on our to-do list, and it can be even more powerful when the issues are complex, abstract, and require long-term thinking—which describes many financial decisions. It’s no wonder, then, that it’s difficult for people to get a handle on their personal finances.

But does that mean there is no hope? Or is there a way to motivate ourselves to tackle our financial to-do list?

Does It Take a Crisis to Make Us Improve Our Financial Management?

Though we are prone to inertia on a day-to-day basis, times of stress or crisis can activate our action bias.

That is, stressful situations often make us want to do something, even if it may not be the best course of action. Crisis can sometimes help us narrow our focus and home in on what is most important. So, does this mean that the threat of a crisis can be what it takes to help people get their financial homes in order?

In a recent study, we found investors overwhelmingly took some form of action when they felt the threat of a recession: In fact, 83% of investors started trying to get their personal finances in order. Though this sounds like good news, a further look into the specific things they were doing reveals that still many were missing some low-hanging fruit for financial health.

The most common actions that people cited were beefing up their emergency savings and paying down debt—which are important steps, but they weren’t taken by enough people to solve the problem across the board.

For emergency savings, only 38% indicated they were increasing their cash on hand, whereas 55% of Americans can’t afford to cover a $1,000 emergency. Furthermore, only 34% of investors were spurred to pay down debt, even though high-interest debt—like credit card debt—is something that needs to be addressed by many more.

Altogether, this suggests that although the threat of an oncoming financial storm (like a recession) may compel some investors to take that first step to improve their finances, it doesn’t get everyone on board. Many investors were not using their motivation to take key actions for their financial health.

Can Little Solutions Combat People’s Financial Inertia?

How else can we combat inertia? A (not so) radical idea is simply to make it easier to do the things that benefit you.

Here are two easy solutions you can put to work in your finances:

1. Let the robots do the work for you.

Studies show that automatically enrolling employees in their employer-sponsored retirement plan drastically increases participation rates. The logic here is beautifully simple: People save more when it’s easier to save. You can use the power of automation for your personal saving goals like building up emergency savings or paying down debt, too. There are already a number of tools that can help automate these processes, such as getting part of each paycheck sent to a savings bank account or ensuring that the autopay for a credit card balance is as high as you can afford.

2. Let conventional wisdom guide your decisions.

In addition to making things easier via automation, you can also simplify making those financial decisions in the first place. The fact is, there’s a lot of personal financial advice out there (and not all of it is good). Some people may want to pay down their debt or stock away more money for emergencies, but that’s easier said than done. How much should they save? Which debt should be paid down first? These questions add complexity that can allow inertia to win out.

However, rules of thumb can help people quickly answer such questions so they can move on to enacting them. For example, common rules of thumb suggest saving three to six months’ worth of spending for an emergency fund or using the “avalanche” strategy for prioritizing paying down high-interest debt first.

So, a simple solution to your financial inertia may start with identifying the issue you’d like to tackle and which rule of thumb you’ll use. From there, you can figure out how much money you can put toward that goal each month and use automation so that money goes directly to your goal without you needing to do anything more.

Rules of thumb and automation may not be the solution for all your financial issues, but these little solutions are a starting point to help you overcome that initial inertia. Once you hit that first financial goal, you can use that momentum to carry you forward to making bigger, more complex personal finance decisions.

 

 

 

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.

How Advisers Can Create Financial Plans That Reflect What Investors Really Want

Sidestepping the limitations of goals-based planning.

By Samantha Lamas, Senior Behavioural Researcher

An investor’s goals are essential for any adviser to know, so they can create an appropriate financial plan. The problem is that many investors don’t truly know their own goals. And even if they do, their goals can change as their lives change. These are some of the limitations of goals-based planning, despite its importance and positive impact.

Even so, it’s clear that when done right, goals-based investing can be a win-win scenario for clients: They can reach their goals and avoid behavioural pitfalls in the process.

In our latest research, we explore whether providing a positive psychology framework could elicit deeper goals from investors. Instead of throwing in the towel, advisers must help clients uncover their true financial goals, which involves moving past top-of-mind and surface-level goals. Moreover, advisers need to account for some wiggle room in a person’s financial plan to prepare for changing circumstances.

How can advisers create financial plans that speak to what investors really want and also maintain a level of flexibility? This is where the concept of positive psychology comes in.

How You Can Find the Goals That Truly Make Investors Happy

Positive psychology is, in brief, the study of what facets of life contribute to happiness, fulfillment, and meaningful experiences. Adopting principles and techniques from positive psychology into financial planning highlights that our specific financial goals aren’t necessarily about the goal itself but about how the goal is going to make us happy.

In other words, there are different levels of goals: surface goals and deeper goals.

Surface goals are the typical goals that investors strive for and that advisers are used to managing: saving for retirementa child’s education fund, or buying a second home.

Deeper goals are the motivations that drive surface goals. These goals are more akin to life goals or values and are related to an investor’s personal requirements for living a fulfilling and meaningful life.

Both levels are important in financial planning, even though surface-level goals are more widely recognized.

Deeper goals provide two key benefits: They help investors connect their financial goals to the bigger picture and they leave room for change. Connecting a person’s surface goals to their deeper goals helps weed out irrelevant goals and uncover opportunities. Once the two levels of goals are connected, it can be easy to see which surface goals aren’t contributing to a person’s life happiness.

An investor’s deeper goals can serve as a constant North Star, even when they go through unexpected life changes: a job loss, receiving an inheritance, or divorce. A deeper goal gives investors a more concrete idea of what they should be aiming for with their finances. The means of how to get there may need to adapt, but the deeper goal remains the same.

For example, consider an investor who wants to buy a beach house. That’s their surface goal. After a bit of conversation, say you uncover that the investor wants the beach house so they can have a go-to place for the family to gather—which means their deeper goal is really to have more time with their family. With this deeper goal in mind, more possibilities open. Maybe they can achieve this same goal in other ways, such as buying a more affordable lake house.

Or, say a client’s surface goal is to retire early. Upon further digging, you uncover that what they really want is to have more time to spend on their passion of volunteering for charity. Given this information, again, more possibilities open. Maybe instead of retiring early, your client can work part-time instead, which still offers them more free time (and happiness)—and they can have it now, instead of waiting 15 years.

How to Use the Positive Psychology Framework With Your Clients

It’s not easy to guide clients through the discovery process of uncovering both their surface and deeper goals. Luckily, advisers can lean on ready-made tools and frameworks to help clients identify both levels of goals. Based on our research, advisers can better discuss goals by working through them systematically:

  1. Start by helping clients uncover their surface goals. Past research suggests that many investors rely on top-of-mind goals during discussions and may need help getting to their true surface goals. We created a three-step exercise to help investors through this process.
  2. Now, it’s time to get to an investor’s deeper goals. For this step, we refer to the PERMA-V framework—a positive psychology framework that states well-being is composed of the following components: positive emotion, engagement, relationships, meaning, accomplishment, and vitality. In our research, we asked investors to consider each of these components and add any more goals that come to mind after going through a goal-setting exercise. Our findings suggest that using a positive psychology framework like PERMA-V may help give advisers insights into a person’s life values—the things that are at the core of their well-being and what makes them happy.

Our research finds that this approach is helpful for ensuring that investors aren’t just relying on their biases or thinking about their most pressing concerns when talking about goals. Moreover, using a positive psychology framework, such as PERMA-V, can guide people through the process of unpacking their motivations.

By first prompting investors with a checklist and then deepening the conversation with a meaningful framework, advisers can explore the specifics of what a client wants as well as the broader drivers underlying their desires. Such conversations can prepare advisers not just to get clients to where they want to go but also to help them be open to alternatives that may also suit their needs.

For this project, Morningstar worked with an unaffiliated wealth management firm, PWL Capital.

 

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.

Crypto, REITs, Private Equity: Long-Term Investments or Short-Term Trends?

By Samantha Lamas, Senior Behavioural Researcher

Investing trends are hard to ignore. Every swipe on your phone seems to boast a new (or reoccurring) investing opportunity that you must jump on—whether it’s a new crypto product or exposure to private equity.

The source may even provide valid-sounding reasons as to why the opportunity is a good idea. However, before you jump on the bandwagon, it’s worthwhile to consider if this opportunity is right for you, regardless of the overall benefits touted online.

Taking a step back before making the plunge can help you do two things in particular: make sure you’re not deceiving yourself and make sure your actions are in line with your financial goals.

Why Are Investors Drawn to New Investment Trends?

In our recent research, we asked individual investors about their knowledge of certain trending investments, whether they owned them, whether they were planning on changing their investment in each, and their motivations behind that decision. We focused on the following trends:

This is, of course, not an exhaustive or perfect list of all assets that could be considered “trending investments,” but it covers the main assets that we identified from conversations with industry leaders and reviews of industry research and content.

We found that most investors only had a basic understanding of these investing trends. For most of the assets, fewer than half of investors felt they could even pick out the correct definition from a list.

When we looked at people’s motivations for making changes to their future investments in each asset, the most common reasons people gave had to do with returns, their confidence in the long-term viability of the asset, macroeconomic factors they thought could affect the asset, and their desire to time the market.

Notice how most of these reasons are related to short-term thinking, trying to time the market, overemphasis on present-day returns, and overreaction to events—common mistakes investors have always made.

Furthermore, many of the benefits commonly attributed to these investing trends—things like diversification, tax efficiencies, or transparency of information—aren’t at the forefront of investors’ minds. In other words, when it comes to decisions about trending investments, it’s all too easy to fall into age-old investing pitfalls.

Follow These 3 Steps Before Jumping Into Investing Trends

To avoid making an impromptu investment decision, it’s helpful to have a set process you can use to slow down, combat cognitive biases, and think carefully through future investments.

To that end, we created a three-step process inspired by our research. The process guides investors through recognizing their knowledge level regarding the investment topic in question, addressing their motivations and connecting those back to their financial goals, and then widening their perspectives:

1. Level-set: Use the following scale to understand how knowledgeable you are about the investment topic. If you rate yourself as 3 or below, hold off on making any decisions until you more fully understand the investment. Regardless of where you are on the scale, consider visiting a few trusted sources for more information about the investment.

Knowledge Level

2. State your motivations and align with your investing goals: Take a moment to state your motivations for making this investment decision. Consider choosing from the following motivations we found in our research. Carefully consider what is driving you to make this change to your investments. Next, consider if this motivation aligns with your financial goals. Fill in the corresponding area in column two with your explanation of how this gets you closer to your long-term goals.

Motivation

3. Deliberately broaden your perspective: Because of the way our minds work, this is harder than it seems. Set aside an hour and intentionally search online for three resources that disagree with your investment decision. For example, if you are looking to buy a particular REIT, read three resources that claim this is a bad idea. Finding and considering perspectives different from your own will help you reduce confirmation bias and garner a more well-rounded view.

 

 

 

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.

Why Do Investors Keep Their Financial Advisers Around?

By focusing on returns, you may be missing out on opportunities to earn your keep.

 

It can feel like a marathon getting a client from the prospect phase to implementing a financial plan, so advisers may understandably see their work with existing clients as a chance for respite. Yet, like the Greek runners of yore, it’s important not to rest on your laurels.

The work of maintaining a client doesn’t always receive as much attention as getting hired or fired by one, but it is still vital to the arc of the adviser-client relationship. Focusing on how you maintain clients can ensure they are both engaged and happy—and happy people don’t fire their advisers.

We might think the main reason that clients keep their adviser is that they are pleased with their returns—we know investors can be overly focused on them. However, our previous research on why investors hire and fire their advisers suggest that returns may not be the dominating factor in how clients think about the adviser-client relationship.

As such, in our latest research, we examined why clients keep their advisers to help you understand how to earn your keep.

Top Reasons Clients Keep Their Advisers

We asked 620 adviser clients to tell us some of the reasons they continue to work with their advisers, and we found three common reasons.

  • Discomfort handling their own finances (37% of responses)
  • Quality of financial advice (22% of responses)
  • Behavioral coaching (16% of responses)

Clients also mentioned returns (12%) and their specific financial needs (9%) as reasons for keeping their advisers. Although returns showed up, they didn’t account for enough of clients’ rationale to be the sole focus of advisers’ efforts to maintain clients. In fact, 59% of the time, clients are keeping their advisers for emotional reasons instead of financial ones.

Are You Earning Your Keep?

Advisers must do more than generate good returns to keep their clients happy. Instead, advisers must fulfill clients’ numerous needs to build and sustain a base of those who will champion their practice. Based on the most common reasons clients keep their adviser, here are some ways to meet those needs.

1. To create comfort, foster trust.

By far the most common reason investors gave for keeping their adviser was that they didn’t feel comfortable enough, interested enough, or knowledgeable enough to do the work of managing their finances themselves. As such, clients are looking for an adviser they feel comfortable handing these issues off to, so it’s important to garner each client’s trust on that front. Our previous research indicates trust can be built on the foundation of a strong relationship in which an adviser cares about the client’s future, acts in line with the client’s best interest, and expresses similar values. Such a relationship requires having more-productive conversations with clients. Although this can be daunting, using frameworks and ready-made guides for discussions can foster these deeper relationships.

2. To demonstrate your value, focus on goal-based communication.

In looking at how clients talked about their adviser, we saw clients tended to talk about why the advice they got from their adviser was good. In short, clients are not just looking for good advice in a vacuum but good advice for them. This means it’s important for advisers to spend time helping clients articulate meaningful financial goals. But it’s also important to tie subsequent communication (such as communication about their portfolio’s construction and progress) back to those goals to help clients connect the dots between your advice and their goals.

3. To instill confidence in decisions, provide behavioral guidance.

Clients don’t often throw around terms like “behavioral coaching.” However, even without using the terminology, many clients identified key components of behavioral coaching in their rationale for keeping their adviser, like scaffolding decision-making. Clients want to feel confident in the decisions they make, but they may not ask directly for the behavioral coaching they need to get there. Fortunately, advisers can be proactive about providing the behavioral support clients need to feel good about their choices. A good place to start is by acting as a financial educator to clients and helping them prepare for times of stress, when making good decisions can be even harder than normal.

In the end, clients like working with advisers who provide reassurance, guidance, and advice tailored to their goals. Although an adviser’s work is certainly not done once a client is fully onboarded, the work of maintaining strong, positive relationships with clients has both extrinsic rewards for your business and intrinsic rewards for you.

 

 

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.

The Key to Personal Financial Planning: Being Lazy

There are benefits to following a simplified approach.

The problem: So many options overwhelm and overcomplicate personal financial plans.

Many of us want to improve our finances, but that’s much easier said than done. The truth is, it’s hard to make sense of all the tools, options, and information at our disposal.

If you’re feeling this same stress, you’re not alone. According to the American Psychological Association, most adults in the United States reported that money was a significant source of stress.

Furthermore, our research has shown that a lack of confidence in making financial decisions is a primary reason why investors hire financial advisors and keep them. Although helping investors build confidence in managing their money plays a big role in financial advisors’ value, this research speaks to the prevalence of money-related stress and lack of confidence.

To make matters worse, the financial industry can sometimes add fuel to the fire with the rate at which it introduces state-of-the-art financial products, shiny new tools, and novel investing opportunities. These tools offer investors new opportunities but are also often overwhelming.

What happens: Mistakes and avoidance.

So what happens when people are faced with monumental decisions with dizzying arrays of choices? There are a few possibilities.

Some people may excel and use these tools and options to create financial plans perfectly tailored to their circumstances. Others may fall into the trap of inertia, where they avoid the decision altogether. Another group of individuals may instead do “too much.”

Research has noted that some investors overtrade, leading to overall poor performance and lost returns. Some investors are also prone to overconfidence, which may prompt them to take part in financial opportunities that they do not have enough experience in and are bound to make mistakes.

What to do instead: Personal finance simplified.

Instead of jumping on every investing trend or obsessively watching personal finance videos, many individuals may benefit from “being lazy.”

Now, this is not a recommendation to disengage and leave your financial future to fate. Instead, it means designating a “too hard” pile, using handy rules of thumb, and automating wherever you can.

1. Too hard, don’t care. (THDC—let’s make this abbreviation a thing!)

This idea from Morningstar’s Christine Benz (inspired by the late Charlie Munger) is worth repeating. As Benz explains, she ignores investments, economic information, and even financial information that can be categorized as “too hard.” Her designation of “too hard” has grown to include not just items that are too complicated but also those that are too time-consuming or detailed or feature fleeting short-term fluctuations. For example, her current “too hard” pile includes individual stocks, frequent rebalancing, leveraged-type investments, short-term market forecasts, and short-term market news. Take the time to make your own list of any items that do not matter to you and your long-term financial goals. Then, actively ignore these things when they come about. This may require you to turn off news notifications or unfollow financial influencers who are constantly chasing the next get-rich-quick investing scheme.

2. Use rules of thumb.

We’re all guilty of assuming that the more advanced (aka complicated) a concept, the better, but this isn’t always true. When it comes to personal finances, sometimes the simple rule of thumb may be better for you than a complicated model or multistep decision process. In past research, we looked at the correlation between common financial rules of thumb and financial well-being. Although we didn’t find that any one rule was more impactful than the rest, we did find strong positive relationships between a person’s habitual use of rules and financial well-being. In other words, find a sensible rule of thumb that you can stick to, then stick to it. For inspiration, here are the top rules that people followed, as reported in our data, separated by financial topic.

3. When you can, automate the decision.

To make a decision as easy as possible, use technology to automate the process. Nowadays, most of us can set up automatic transfers on our bank apps to move money from our checking accounts to our savings accounts or automatic increases of our retirement contribution rates that correspond to our raises. This is the ultimate “lazy” way to personal finance because once you set up the automated process, the key is to not touch it.

 

 

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.

How Often Do You Really Need To Meet With Your Clients?

What the quality and quantity of meetings can mean for adviser-client relationships.

 

Is there a sweet spot for the cadence of client meetings?

From a numbers perspective, it may be necessary for an adviser to meet with a client only once a year to revise their plan based on any recent updates. But how about from a client’s perspective?

In past research, we have found a positive relationship between adviser-client interactions—whether that be a quick text message, email newsletter, or an in-person meeting—and adviser-client relationships. But does this finding hold for adviser-client meetings? And is there such a thing as too much?

How Often Do Most Clients Meet With Their Financial Advisers?

We asked 399 current adviser clients how often they met with their financial advisers and how long their meetings usually take. We also asked these clients how satisfied they were with their advisers. Before we dive into the relationship between these variables, let’s take a look at the participants’ answers.

Most clients in our sample met with their advisers on a quarterly basis, but those who didn’t were fairly split between meeting more or less often. In other words, there is a wide range regarding meeting cadence, again signaling that advice on how often to meet with clients is mixed.

When we asked participants how long their meetings usually were, we again got a wide range of responses. Some clients seemed to meet with their advisers for quick 10-minute conversations, while others met for longer than an hour. The average meeting duration overall was 39 minutes.

Is Meeting Cadence and Duration Connected to Client Satisfaction?

When we looked at the relationship between satisfaction and cadence and satisfaction and duration, we found mixed results.

When it came to the relationship between satisfaction and duration, there really wasn’t much to write about. We found a correlation of just 0.19 between the two variables. These results suggest that how long an adviser meets with a client may not have too much of an impact on that client’s overall satisfaction regarding the relationship.

It also seems like meeting with clients every quarter may be enough for client satisfaction. Although we only found a modest correlation between cadence and satisfaction (r = 0.31), further regression analyses suggest that cadence may affect a person’s satisfaction nonlinearly. The following graph shows that satisfaction does increase the more often clients meet with their advisers, but average satisfaction plateaus after increasing to quarterly visits.

3 Key Takeaways for Advisers

Our results from this simple analysis suggest a few key takeaways for advisers:

  1. In the absence of other preferences, consider trying out a quarterly meeting cadence. According to our data, in general, many clients may benefit from meeting with their advisers quarterly. This cadence may be especially useful for advisers who are just starting out or are struggling to engage with their clients. However, it’s important to note that every client is different, and advisers should consider their unique preferences when deciding on a meeting cadence.
  2. Focus on the content of each meeting, not the length. Meetings don’t have to be two hours long to be effective in promoting client satisfaction. Our results suggest that it’s the quality of time with your client that matters not the amount of time. Having a set schedule of what will be covered during the meeting can help keep things on track.
  3. Make sure to interact with your clients regularly outside of meetings. Regardless of how often you meet with clients, offer regular interactions with them through emails, newsletters, social media, or other forms. When it comes to maintaining a strong adviser-client relationship, staying top of mind is key.

 

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.

From Cost to Value – Transforming How You Think About Advice Software

If you’re looking for a return on investment that goes beyond just cost considerations, upgrading your tech can be the ideal place to start. 
 
By Ken Ong, Associate Director of Product
 
Coming out of the year-end break, it’s easy to get overwhelmed by the demands of a new year. From onboarding new clients to battling with dated systems that haven’t evolved with your practice, there are several concerns competing for the top of the to-do list. But advice software doesn’t have to be one of them – especially when your technology stack can save you dollars while saving you time. If you’re looking for a return on investment that goes beyond just cost considerations, upgrading your tech can be the ideal place to start. 
 
1. Shifting Perspective: Software as an Investment Decision
In the quest for cost-effectiveness, financial advisers often undervalue the intrinsic value of software as an investment. Rather than viewing it solely through the lens of expenditure, consider it an essential tool that contributes to your business’ growth. The key question to ask is, “Are you reaping sufficient returns from the system based on what you are paying for it?”
 
2. Calculating Return in Software: Time Saved
Traditionally, the return on investment is measured in dollar terms, but in the realm of financial planning software, the currency is time. Efficient advice software should translate into time saved. Evaluate the hours saved per month and assess their financial equivalent. For instance, if you save 3 hours a month using a particular software and your professional charge rate is $300 per hour, then the monthly value saved is $900.
 
3. Assessing Cost Justification: A Practical Example
Let’s delve into a practical example to illuminate the concept. Suppose you’re using Morningstar AdviserLogic software and saving 3 hours monthly, equating to a value of $900. If the software costs less than $1200 per month, the investment is justifiable. However, if the cost surpasses the value saved, it’s time to consider alternative solutions.
 
4. Beyond the Bottom Line: Additional Benefits
While cost is a crucial factor, it’s vital to look beyond the bottom line. Consider the holistic benefits that the software offers. Does it enhance client interactions, streamline reporting, or provide insightful research and data analytics? These additional advantages contribute significantly to the overall return on investment.
 
5. Adapting to Changing Needs: When to Reassess Your Software
The financial advising landscape is dynamic, and so are your business needs. Regularly reassess your software to ensure it aligns with your evolving requirements. If your current system falls short in delivering maximum efficiency and value, it may be time to explore alternative solutions.
 
6. Making the Change: A Thoughtful Approach
Changing software systems is a significant decision. Before making the switch, conduct a thorough evaluation of potential alternatives. Consider factors such as features, user-friendliness, and scalability. Additionally, seek input from team members to ensure a seamless transition and minimal disruptions to daily operations.
In the pursuit of cost-effectiveness, financial advisers must adopt a strategic mindset, treating software as a valuable investment rather than a mere expense. By assessing the time saved and ensuring it surpasses the associated costs, advisers can make informed decisions that not only enhance efficiency but also contribute to long-term business success. Regularly reassessing software solutions ensures alignment with evolving business needs, guaranteeing that the tools in place continue to deliver the maximum value.
 
Ken Ong is Associate Director of Product – Financial Planning at Morningstar Australasia Pty Ltd.
 
 
 
 

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.

Adviser-to-client template: 2024 Opportunities

For financial advisers to use with clients. This document is intended to support your service proposition to clients. It is produced by our investment writers with a deliberately light tone and structure. However, these are guidance paragraphs only. It is not guaranteed to meet the expectations of regulators or your internal compliance requirements. If you wish to remove or amend any wording, you are free to do so. However, please bear in mind that you are ultimately responsible for the accuracy and relevance of your communications to clients.

 

 

Dear Client,

As we settle into 2024, I wanted to proactively reach out to you by delving into key trends, potential opportunities and risk factors that are shaping your financial progress.

If you have any questions about the below, or require any financial planning assistance, please don’t hesitate to contact us and we’ll arrange a time to meet.

Key Trends

Investors will likely be happy as they review their statements in early 2024. Nearly all traditional asset classes have generated positive returns in recent memory, boosted by performance across equities and bonds. This obviously follows a tough year in 2022 for most investors, so we feel good about the market direction and what is ahead.

The strength has largely been driven by the expectation central banks will cut interest rates in 2024 as the worst of the inflation spike is now considered behind us. Several equity markets now sit at or near all-time highs. Bonds have had a harder time but have also seen a recent uptick prices as yields fell in Q4 2023. This is a feature, not a bug, of investing – we want different assets that can perform well at various stages of your journey.

Let’s not forget that investors went into 2023 worried about inflation and expecting a recession by the second half of the year. This never transpired. Now in 2024, investors are expecting low inflation, no recession, and significant interest rate cuts.

Potential Opportunities

At present, we remain cautiously optimistic. Our approach in this environment is to balance risk and opportunity, with some asset classes looking attractive to us at the current time.

To that end, we are informed by the views of Morningstar, among others, and see positives in this environment. Morningstar sees opportunities to add value in fixed income and select equity markets, which are expressed in your portfolio. A brief list of the convictions include:

  • A broad allocation to equities, although parts of the US market are expensive by historical standards.
  • A small allocation to emerging markets, despite the risks China equities look attractive.
  • Government bonds where higher yields can provide diversification benefits again.

We feel good about your portfolio and its ability to capture the opportunities that exist. This is especially true given the potential interest rate cuts ahead, where we could find ourselves with a tailwind to our back.

Risk Factors

On the risk side, it is likely to be a busy year with elections in the US, UK, India, and others. Geopolitical tensions are also quite high, so we should expect bouts of uncertainty. In times like these, it is essential we remind investors that the presence of uncertainty does not imply a scarcity of opportunities.

As Warren Buffett famously said, “Risk comes from not knowing what you are doing”. In this respect, we want to emphasise the importance of focusing on good investing principles and dealing with the conditions we are faced with. We will continue to control everything we can, while managing those factors we cannot control via principles such as diversification.

Overall, we feel well placed to advance your financial journey over 2024 and believe your portfolio is well positioned for this environment. Markets have been reasonably kind to us lately and we continue to look ahead with positive intent.

Should you have any questions or require further clarification on any aspect of your financial plan, please do not hesitate to reach out.

Kind regards,

Adviser

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.

2 Ways to Build Strong Client Relationships

Don’t wait until a financial crisis to shore up your client relationship.

 

As behavioural researchers, we often get asked questions like:

  • How can I prompt clients to refer me to others?
  • How can I prevent lost returns or market volatility from affecting my client relationships?
  • How can I convince my client to follow my advice?

Although each of these questions has its own nuances, at their core, they have one thing in common: They pertain to building a strong relationship with clients.

Once an advisor has a strong relationship with their clients, many of these problems seem to resolve themselves. Even for those that require a bit more coaxing, the solid foundation of a strong client relationship will make ongoing interventions much more successful.

The problem in modern-day financial advising is that many advisors wait until a financial crisis to dedicate time to their client relationships—only then do many advisors play the role of financial counselor or coach by helping clients manage their emotions. At this point, it might be too late. Research shows that lost returns are among the top reasons advisors get fired. Also, research has found that satisfaction with advisors followed market fluctuations.

In other words, you have to do the work to build a strong client relationship before a crisis. Unless you’ve done that prep work, when markets go awry, your client relationships may already be suffering.

What Behavioural Finance Insights Can Teach Us About Client Relationships

So, how do you build stronger client relationships? To start, let’s consider what breaks them.

In our research, we asked investors who had cut ties with an advisor in the past why they fired their financial advisor. The exhibit below shows the top six reasons why investors fired their financial advisor, and the percentage of responses that pertained to each category.

Once we dug into each of these categories, we uncovered two key areas advisors can focus on to prevent these issues from popping up in their practice, and to mend or build strong relationships in the process.

How to Build Stronger Client Relationships

Based on our research, there are two powerful areas advisors can improve on to strengthen relationships: building understanding and building trust. Below, we provide research-backed insights advisors can use to improve both.

Building Understanding

To understand an investor, advisors must begin by helping the investor understand themselves. To an extent, advisors must help investors discover their own needs and goals.

To better understand a client, advisors must ask good questions and then listen. This sounds simple, but it isn’t.

  • Start with an icebreaker question—there are loads of promising ones out there. Regardless of which one you use, pay attention to how this question affects your client’s mindset. Small tweaks in wording can make a difference in how they think about their financial goals.
  • Remember that the client should be talking most of the time. If it takes a moment for them to answer a question, that’s OK. Don’t jump in to fill the silence—let the client fill it themselves.

Sometimes it’s hard to help a client dig deeper during discussions, but it’s essential to really getting to know a client.

  • Don’t be afraid to lean on ready-made checklists, exercises, or tools to guide discussions.
  • Repeat this process regularly. Many advisors only do this during onboarding but, as clients change, their needs change.

Building Trust

Trust is about vulnerability, and for an individual to feel comfortable with vulnerability, they need to believe in the intentions and behavior of the other party. To develop trust with a client, start by putting those intentions and behaviors on display. This is still about building understanding—but now, it’s about helping the investor understand you.

Building trust starts with open and honest communication that makes the financial planning process clear and accessible to clients.

  • Help your clients understand the services you provide and how they can be used in their personal situations.
  • Be proactive about reaching out to clients. Remember, out of sight is out of mind. While you’re at it, try using different communication channels to meet clients where they are.
  • Keep clients updated on both the actions you take with their account and what market insights mean for them.

In our research, investors consistently cite an advisor acting in their best interest as a top source of trust. Unfortunately, many clients may not have a good idea of what the term “best interest” means.

Discuss your commitment to the best interest standard by defining what it means for your relationship with the client and their money. A few possible topics to address:

  • How do you get paid?
  • What happens if the client accepts your recommendation?
  • Show a breakdown of any costs/fees.
  • Detail how often you will be monitoring their investments.
  • State how often you will be meeting with the client.

 

 

 

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.

Don’t Let Communication Errors With Clients Become Dealbreakers

Learn how to prevent the little mistakes from adding up.

 

Issues in communication can often be seen as inconsequential, which is reflected in how we talk about them—”verbal flubs,” “slip-ups,” “lapses in communication,” and so on. But these little turns of phrases belie the reality that miscommunication can be costly.

In a recent study, we found that numerous faux pas that financial advisors may view as minor actually damage their relationship with their clients, and many of these mistakes were rooted in miscommunication. There were issues related to how things were communicated (like how fees were broken down), and there were issues related to what was communicated (like how long it would take an advisor to complete a task).

Miscommunication is common and impossible to eradicate altogether, but understanding it allows advisors to better prevent and resolve these issues when they happen, helping mitigate the amount of damage done.

You will miscommunicate with clients.

Miscommunication is inevitable because language itself is ambiguous. If I told you, “I emailed the woman with an idea for a project,” you might interpret it as: 1) I sent this woman an idea I had for a project, or 2) I reached out to a woman who had an idea for a project. There is more than one valid way to interpret this sentence.

This issue with communication is compounded by the foibles inherent to the human mind. For one, we tend to think egocentrically when we talk. That is, our default is to treat our personal, private knowledge as common ground with the person we’re talking to, even when it’s not. This is especially troublesome for professionals, so much so that it is considered a “curse” (the curse of knowledge). When we know something, it’s hard to imagine not knowing it. This issue is further exacerbated by our tendency toward overconfidence. We often talk about overconfidence in decision-making, but people likewise think they have communicated their point to others better than they actually have.

We can see both behavioral biases come into play when we look at those faux pas. When telling a client the next steps you are going to take with their investments, you may fail to communicate an expected timeline with them because you know the estimate but fail to consider they might not have a frame of reference. Furthermore, you may think you have successfully communicated with clients about how your fees break down because you touched on it in a meeting but fail to see how this breakdown was unclear to the client.

What can you do about it?

Now, I’ve given you the bad news about miscommunication being both costly and inevitable, but I will not leave you hanging on tips for dealing with it.

1. Practice clear and concise communication.

For our purposes here, practice makes automatic. We are more likely to make those egocentric communication mistakes when our brains are working harder. This is because, when taxed, our brains turn to automatic ways of thinking to help complete tasks. Since multiple things can be taxing your brain on a given day, you should make clear and concise language your default for explaining important and complex topics—from how fees work and the best interest standard to the different investment vehicles and which ones are (or aren’t) right for your client.

First, take the time to nail down your messaging. You need to strike the balance between relying on industry jargon and knowledge and being too patronizing. Start by writing out an explanation for a topic and then read it over; ask yourself if there is background knowledge that a well-respected friend who isn’t in finance would need in order to understand you. If so, add it in. When sufficiently revised, practice these explanations with yourself, your colleagues, or your dog until they are second nature.

2. Create frameworks of written communication that you can deploy with your clients.

Sharing information with clients in a way to ensure they extract the important information is not easy. Advisors often have to convey a lot of information to clients, but done improperly, this can lead to information overload (where the amount of information breaches our capacity to process it). However, creating and deploying standard frameworks for written communications can help by scaffolding how that information is processed by your clients.

For example, you can set a standard for client emails that subject lines must all contain the same information (such as the purpose of the email and whether action is required by the client). For longer emails, you can also include a key summary section that includes things like next steps and expected timelines. How you standardize your communication can be specific to your practice and clients, but setting up guidelines for doing so can help ensure you’re providing clear information to clients and that they know how to find it.

3. Follow up with clients to check on comprehension.

This is not a test for your clients; it’s a test for you. Following up with clients will help you determine if you need to communicate better. One way you can do so is by sending clients a postmeeting survey, checking to see whether there was miscommunication. We have developed one based on the most common faux pas financial advisors make, but you might want to develop your own.

It’s important here to not just send out this survey and wash your hands of it. Instead, you must follow up with clients and clarify any miscommunication that happened. This practice gives you the twin benefits of mitigating damage that miscommunication may have done to a particular relationship and of helping you identify your communication weak points.

 

 

 

 

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.

Adviser-to-client template: 2024 Outlook

For financial advisers to use with clients. This document is intended to support your service proposition to clients. It is produced by our investment writers with a deliberately light tone and structure. However, these are guidance paragraphs only. It is not guaranteed to meet the expectations of regulators or your internal compliance requirements. If you wish to remove or amend any wording, you are free to do so. However, please bear in mind that you are ultimately responsible for the accuracy and relevance of your communications to clients.

Dear client,

As we near the end of 2023, I want to provide you with some guidance on how we are thinking about the investment landscape for 2024. Of course, if you have any questions relating to this, please do reach out to discuss. We otherwise wish you a great lead-up to the festive season and look forward to connecting in due course.

Investing Outlook for 2024

It is helpful to look back over 2023 and acknowledge it has been a delicate year for investors. Yet, we’ve been relatively pleased with how we’ve navigated such an environment given the pace of change and the major increase in interest rates.

In some respects, this sets us up for a more positive investment outlook for 2024, with a much better starting position for money invested today due to the higher rates. Yet, our overall approach for 2024 will be a blend of continued caution and optimism. We understand market volatility can be daunting, but it’s important to remember that periods of market volatility and pessimism are a normal part of the journey to reach financial goals. Moreover, pessimism often creates some of the better investing opportunities. With this in mind, we see a blend of fixed income and selected equity markets playing a role, which you currently hold.

Risks and Opportunities Ahead                                                                         

Part of the reason for the balance between caution and optimism is that anything can happen in a given month or year. This is especially relevant in a fast-changing inflation setting.

To manage this scenario, we 1) emphasise risk management, and 2) take a long-term perspective to create value in your financial plan. Prudent investors who stay the course and focus on matching their portfolio objectives to their goals can create long-term value. These are core principles we apply consistently and we believe will continue to serve you well in 2024.

If you’d like a detailed view of what might lie ahead, the Morningstar 2024 Outlook is fresh off the press and worthwhile reading. We’ve summarised the key takeaways below:

  1. Economic backdrop – the outlook includes a slow economy, lower inflation and eventually lower interest rates. This is supportive of classic multi-asset portfolios investing in bonds and equities.
  2. New risks, including the wars and upcoming election – the collection of concerns is daunting, but it’s worth remembering that not every risk requires a whole new portfolio to survive its realisation. A well-calibrated portfolio should weather most external shocks fairly well.
  3. Opportunities and risks of artificial intelligence – as companies of all shapes and sizes try to take advantage, we could see profit margin expansion, but it carries risk too. The principles of good investing still apply.
  4. Taking advantage of higher interest rates – the transformation in the income landscape is meaningful, with certain asset classes gaining in attraction. Bonds in particular have become more attractive as interest rates have increased.

All of these points relate to your portfolio nicely. While risks need to be managed, there are clear opportunities for gain. By staying informed, maintaining a diversified portfolio, and focusing on the principles of good financial planning, we can navigate the changing investment landscape and make meaningful progress towards your goals.

Again, if you have any questions or would like to discuss your portfolio in more detail, please don’t hesitate to reach out. We are here to help.

Regards,

Adviser

 

 

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.

7 Faux Pas for Financial Advisers To Avoid

Time and again, research shows the personal relationship between a client and their adviser is paramount to both parties’ success. Without a strong personal relationship, advisors cannot provide the customized, high-quality level of advice that clients are looking for nowadays. Because of this, clients may disengage with their advisor or outright fire them if they experience a lack of personal relationship along with lackluster advice.

In our latest research, we investigated which adviser behaviours contribute to investor disengagement. Moreover, we dove into how investor disengagement presents itself in the adviser-client relationship.

Death by a Thousand Cuts

We started our research by collecting common adviser behaviours. We then asked adviser clients to rate how frequently they experienced each behaviour. For those they reported experiencing, we asked participants to rate their emotional response to the behaviour (on a scale from “I really disliked it” to “I really liked it,” with a neutral midpoint). We then asked participants how each behaviour affected their relationship with their adviser across four dimensions: their trust in their adviser, their decision to collaborate with their adviser, their decision to allocate assets for management, and their decision to recommend their adviser to others.

Which Common Adviser Behaviours Do Clients Dislike Most?

We found seven actions that clients reported disliking (in order from most to least disliked):

  1. Did not provide a breakdown of fees.
  2. Took more than a week for tasks.
  3. Used financial jargon.
  4. Recommended investments without considering values.
  5. Suggested investment options without going into details.
  6. Asked me to complete long forms.
  7. Did not provide holistic advice.

For the rest of the actions in the survey, clients reported either neutral or positive feelings (see paper for full results). To understand the impact of these disliked behaviours, we created a composite score of the four dimensions and then identified the relationship between the score and each disliked behaviour. We found that how much a client disliked an action had a moderate, negative impact on their relationship with their adviser. In other words, an investor experiencing a disliked behaviour was discouraged from trusting and recommending the adviser, as well as encouraged to invest less with and to stop working with the adviser.

Faux Pas No More: Being Conscious of Disliked Behaviours

Some of the adviser behaviours we investigated in our research may seem harmless on the surface but can lead to disastrous wounds over time. It’s all too easy to wave off these results, with the claim that you (as a financial adviser) don’t do these things to your clients. Other advisers use financial jargon that leave clients confused or speed past investment explanations. Not you, of course. Unfortunately, we find more than half of the clients experienced each of these behaviours with their own advisers—making these behaviours a lot more common than any adviser should be comfortable with.

To help advisers make sure they aren’t one of the culprits, we created a two-step takeaway that’s accessible in the full white paper. The first step is a checklist that advisers can use before and during a conversation with a client, so they can reflect and address the top five disliked behaviours we found in our research. Step two is a follow-up survey template that advisers can send to clients after a meeting. The survey subtlety asks the client if they experienced any of the top five disliked behaviours during their meeting with their adviser. Compared with being face-to-face, the online format of the survey may encourage honest feedback; instead of being put on the spot, clients have time to reflect on the meeting and provide comprehensive feedback.

Together, this two-step takeaway can help advisers ensure they are not accidentally tearing down the relationships they meant to develop.

 

 

 

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.