EQ will beat out IQ every day of the week when working with clients, said Fidelity Institutional president Michael Durbin.
November 9, 2022
Although long associated with math and models, in the future providing a solid financial plan will require supporting clients emotionally.
“The top advisors over the next decade or two will be those who have the greatest EQ rather than IQ — like command of Greek letters,” Fidelity Institutional president Michael Durbin said at the Securities Industry and Financial Markets Association annual meeting last month. EQ is one’s emotional quotient, whereas IQ scores intelligence. “It’s going to be those who can modify behavior, coach, sell and be empathetic,” he said.
Fidelity Institutional offers an outline for advisors, the Advice Value Stack, that describes how advisors can differentiate their practices, according to Fidelity’s website. The stack moves from bottom to top, starting with managing money and moving through achieving goals and peace of mind to culminate in fulfillment, according to the firm.
“That foundation is managing the money; firms have to do it well,” said Durbin. That means mastering portfolio construction, manager selection, trading and billing, he said.
“You have to do that extraordinarily well, and you have to always do it well. That’s the nature of a base. A customer isn’t going to allow the advisor to come up the stack with them unless that foundation is constantly performing well,” Durbin said at the conference.
What comes on top, though, can help advisors stand out.
Achieving goals, the second layer, includes financial and tax planning, which “most of the industry has embraced,” according to Durbin.
Putting clients’ minds at ease is “the place of perhaps insurance products but it’s also putting a premium on the advisor’s EQ with the client heads of household that they’re serving … what’s keeping them up at night beyond planning and managing money, because invariably something’s keeping clients up at night,” Durbin said at the conference.
Finally, the top layer — fulfillment — concerns the client’s legacy, including trust and estate planning and intergenerational wealth transfer, according to Durbin.
“If you’re going to try to get yourself up the value stack, the reality is you have to employ a lot more EQ than IQ the farther you go up that stack,” Durbin said at the conference.
And unlike IQ, for which questions might hinge on model construction or regression analyses, there are no outsourced EQ options for advisors, he said.
“The faster an advisor or an advisory firm can get up that value stack, the quicker a sustained differentiator can emerge,” Durbin added.
But advisors aren’t often comfortable broaching personal topics, separate research from eMoney Advisors suggests. In fact, only 23% of 660 advisors surveyed by the group said they are “extremely comfortable” having personal conversations with clients. Yet 41% of the 2,800 investors eMoney asked said that they considered it important that advisors are open to sometimes difficult personal talks.
In April, the Certified Financial Planner Board of Standards released “The Psychology of Financial Planning,” a six-part book intended to be a resource for financial planning professionals on the “critical competency” of psychology, according to the CFP Board’s website.
The advisor-training process tends to focus on exams, acquiring clients and adding assets, but “the problem with that model is that when the advisor takes all of that knowledge and skills that they’ve learned, and their initial training, and now goes out to deal with real human beings, they confront reality,” CFP Board managing director of corporate relations Joseph Maugeri told FA-IQ in June.
“They find out that not all clients have the same beliefs about money, risks, caring for their loved ones, and how to make good financial decisions,” Maugeri added.