Client relationship 'more effective' than asset allocation


The relationship between the adviser and client is more important to financial returns than asset allocation, an expert has claimed.

Speaking on the FTAdviser podcast, Greg Davies, head of behavioural science at Oxford Risk, said getting the client-adviser relationship wrong could have a larger negative impact on a client’s overall returns than an issue around asset allocation.

He said: “Over time, getting a relationship wrong can have a bigger effect on an adviser’s client’s overall returns than getting the asset allocation slightly strong, because if they sell at the bottom of the market or buy high and sell low, those add up to bigger costs.

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“This stuff really matters, and matters to the financial outcome.”

Mr Davies said a client’s risk tolerance was often made up of a client’s willingness to take risk and their financial ability to ride out the ups and downs.

But he added: “This is seldom the complete answer. It’s not only a financial ability but an emotional ability to ride the ups and downs, and emotional liquidity. It’s about how a client can stick out the journey so they don’t exit before the end.”

Mr Davies was discussing the role of behavioural capacity in the advice process with Alistair Wilson, head of platform strategy at Embark Group and Niall Gunn, managing director at Prosperis.

Mr Wilson agreed it was an important part of the advice process, saying that many advisers were already looking at this aspect and working with different personal tolerances. He noted it was an aspect likely to expand in the future.

According to Mr Gunn, working out the behavioural capacity of a client was “very much” part of his own advice process.

He said: “The way I would couch it is that it's relationship management. It is beyond the assessment of risk, and beyond picking the right portfolio.”

Mr Davies added that advice firms were currently at the “beginning of what is possible” in terms of behavioural capacity.

The podcast guests also discussed what an advice firm would look like having fully adopted behavioural capacity into their processes and how this could work within regulation.

In a further segment, hear about the changing nature of advice firm revenues and the ongoing problems around social care from FTAdviser senior reporters Rachel Mortimer and Amy Austin.

To listen to the full podcast click play on the video above or listen on Apple Podcasts, Spotify, Stitcher or Acast.


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