Emotion dominates advice irrespective of channel: Vanguard

A Vanguard study surveyed advised clients with the aim of measuring the value of advice, speaking to consumers using human advisers, automated ones and as well as the company’s own clients, who use a mixture of both.

The researchers ranked the clients’ responses for why they value advice in terms of emotional and functional need, looking at different aspects of the practice.

The factors found to have the highest relative importance to value of advice were all more emotionally driven, such as plan monitoring, trust and connection – more functional parts of the service were at the bottom of the list – including performance, online access and budgeting.

The research found that for traditionally advised clients, function made up 59 per cent of value and emotion made up 41 per cent of value. For robo-advised clients, function correlated to 62 per cent, whereas emotion was 38 per cent.

Vanguard clients (who use both human and robo-advice) ruled function as 55 per cent of value with emotion being 45 per cent.

Cynthia Pagliaro, senior research analyst at Vanguard, said advisers would know that emotional value exists in building interpersonal relationships with their clients, but how large it turned out to be when measured is “shocking and surprising”.

“It represents nearly half of the value your clients are getting out of your relationships,” Ms Pagliaro said.

Looking at automated advice, she added, “It's pretty large for robo-advice investors too. Remember, there's no person involved in this relationship, but they still get emotional value out of their relationship.

“[For] advice clients, it’s really about that personal connection, among other things. For robo-investors, it’s that need for empowerment. Robo-investors feel a sense of pride that they’ve taken control. They’ve done something for themselves financially, so they feel really empowered.

“For Vanguard clients, it’s all about protection and security, that’s the emotional value. What we should focus on is how important emotion is, regardless of the channel people select.”

Ms Pagliaro added that for advisers going through structural and regulatory changes and pressure, now is a crucial time to foster their relationships.

“Any work that you've been doing in that client-adviser relationship, to work on trust, to work on personal connection is all adding value to the relationship,” she said.

Vanguard has created a framework for thinking about value in financial advice, with three pillars: portfolio value, financial value and emotional value.

“Value is multi-dimensional, and you need to think about it accordingly,” Ms Pagliaro said.

“Right, so we can't just focus on one pillar, we have to look across all three. And the second [takeaway is] that emotional value exists, and it's really too big to ignore.

“In the end, good advice isn't just about numbers. It's also about creating a sense of financial wellbeing for your clients.”