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Boosting Financial Advisers’ Performance through Emotional Intelligence
Financial advisers are known for their technical expertise, market insights, and ability to help clients achieve financial security. But another aspect of the job is often overlooked, yet just as crucial: emotional intelligence (EI). Emotional intelligence can distinguish between a good adviser and a great one. Research shows that financial planners who hone their EI skills enhance their job performance and build stronger, more lasting relationships with clients.
In this article, we’ll explore the benefits of emotional intelligence in the financial advisory profession, drawing on various studies and research. By the end, you’ll see how developing EI can help you meet your client’s emotional needs, enhance trust, and ultimately improve your success.
What Is Emotional Intelligence?
Before diving into the specifics, let’s clarify what emotional intelligence entails. Emotional intelligence refers to the ability to recognise, understand, and manage our own emotions and the emotions of others. For financial advisers, this means more than staying calm under pressure – it’s about perceiving clients’ emotions, responding to their concerns empathetically, and guiding them through financial decisions that align with their emotional states.
EI is typically broken down into several components:
- Self-awareness: Understanding your own emotions.
- Self-management: Managing those emotions appropriately.
- Social awareness: Recognising emotions in others, such as clients.
- Social Influence: Using emotional awareness to manage interactions effectively.
These aspects of EI are essential for financial advisers who want to stand out in a competitive market.
Understanding Clients’ Emotional Needs
While financial planning may seem like a numbers game, the reality is that clients come to financial advisers with emotional baggage – fear of the future, anxiety about investing, or even distress from past financial failures. Research conducted by Himawan (2020) emphasises that financial advice provides clients with more than just better financial outcomes – it also helps them gain peace of mind and greater confidence. Clients who work with financial advisers tend to worry less and feel more in control of their financial futures.
This emotional aspect of financial planning must be addressed. Financial advisers who are emotionally intelligent can help clients manage these emotions and feelings, offering reassurance and guidance. By doing so, advisers improve the client’s financial literacy and enhance their overall well-being.
The Importance of Behavioural Coaching
One critical role of financial advisers is that of behavioural coaches. As Bennyhoff (2018) outlines, advisers must anticipate factors that may cause clients to deviate from their financial strategies. Emotions can often cloud judgment, leading to rash decisions that harm long-term outcomes. By anticipating emotional triggers, advisers can have meaningful discussions that help clients stay on track.
For example, clients might panic during a market downturn and consider selling off their investments. A financial adviser with high emotional intelligence can recognise the fear driving this decision and remind clients of their long-term goals. This ability to “coach” the client through emotional moments adds immense value and fosters trust.
Trust: The Core of Adviser-Client Relationships
Emotional intelligence also plays a pivotal role in building trust with clients. According to Bennyhoff et al. (2018), 53% of clients cite meeting emotional needs as the most critical component of trusting their financial adviser. Clients need to feel valued, respected and understood. Meeting these emotional needs often leads to stronger relationships and greater client retention.
Research by Kinniry Jr. et al. (2019) introduces the concept of “adviser alpha,” which suggests that advisers can add as much as 3% per annum in value to their clients by acting as behavioural coaches. Up to 1.5% of this value comes from helping clients manage their emotions and stay disciplined with their investments. The research emphasises that advisers need their clients’ trust to be effective in this role.
The top reason clients switch advisers isn’t poor investment decisions – it’s that advisers aren’t responsive enough. Emotional intelligence skills such as active listening, empathy, and effective communication are critical in preventing this client attrition. For example, knowing how often and in what format a client prefers to communicate is an essential part of managing these relationships.
Emotional Intelligence in High-Stress Situations
Financial advisers often navigate emotionally charged situations. In a study by Sussman and Dubofsky (2009), 75% of advisers reported having clients who became emotionally distraught during a planning session. A financial adviser’s role extends beyond mere financial advice—it often involves dealing with a client’s life events and emotional upheaval. Coaching skills and EI allow advisers to manage these situations more effectively.
Emotional intelligence is so crucial in these moments that some experts argue it explains the performance gap between top and bottom-performing advisers. A meta-analysis by Van Rooy & Viswesvaran (2004) found that EI strongly predicts workplace performance across various roles. Given the high levels of communication required in financial planning, EI likely plays a significant role in an adviser’s success.
The Long-Term Benefits of EI Development
Building emotional intelligence isn’t just about short-term gains; it also has long-term benefits. Research shows that advisers with higher EI tend to have better client retention and more referrals. In McCarthy’s (2020) PhD research, advisers who scored higher on EI received more referrals from clients and experienced higher retention rates. This translates into sustained income and a growing client base over time.
American Express even conducted a study in which financial advisers underwent a year-long EI development program. This resulted in an average sales increase of 25% across four cohorts. Stress levels among participants decreased by 29%, while positive emotional states increased by 24%. The study concluded that ongoing development of emotional intelligence skills leads to better performance and lower stress levels for financial advisers.
Conclusion: EI as a Game Changer
Emotional intelligence (EI) is a critical skill for success in the ever-evolving world of financial planning. It can significantly enhance an adviser’s effectiveness by helping clients stay disciplined, build trust, or manage high-stress situations. More than just a “soft skill,” EI has a measurable impact on client satisfaction, retention, and financial performance.
Developing emotional intelligence is not just an option for financial advisers who want to thrive – it’s necessary. By cultivating self-awareness, empathy, and effective communication, advisers can build deeper, more meaningful client relationships, leading to long-term professional success.
References:
Bennyhoff, D. G. (2018). The Vanguard Advisor’s Alpha Guide to Proactive Behavioral Coaching. Valley Forge, Pa.: The Vanguard Group.
Bennyhoff, D. G., Kinniry Jr., F. M., & DiJoseph, M. A. (2018). The Evolution of Vanguard Advisor’s Alpha: From Portfolios to People. Valley Forge, Pa.: The Vanguard Group.
Gilboa, S., Shirom, A., Fried, Y., & Cooper, C. (2008). A meta-analysis of work demand stressors and job performance: Examining main and moderating effects. Personnel Psychology, 61(2), 227–271.
Himawan, A. (2020). Peace of mind: understanding the non-financial benefits of financial advice. International Longevity Centre. [Online] Available at: https://ilcuk.org.uk/wp-content/uploads/2020/11/ILC-Peace-of-mind-The-non-financial-value-of-advice.pdf [Accessed 10 June 2024].
Kinniry Jr., F. M., Jaconetti, C. M., DiJoseph, M. A., Zilbering, Y., & Bennyhoff, D. G. (2019). Putting and value on your value: quantifying vanguard adviser’s alpha in the UK. Valley Forge, Pa.: The Vanguard Group.
McCarthy, A. (2020). Exploring the relationship between financial adviser emotional intelligence and perceived client relationship markers. Capella University.
Sussman, L., & Dubofsky, D. (2009). The changing role of the financial planner part 1&2: Prescriptions for coaching and life planning. Journal of Financial Planning, 22(9), 50–52.
Van Rooy, D. L., & Viswesvaran, C. (2004). Emotional intelligence: A meta-analytic investigation of predictive validity and nomological net. Journal of Vocational Behavior, 65, 71–95.
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