According to the Harvard Business Review, over 80% of 150 CEOs surveyed considered empathy to be crucial to their success. Empathy forms the basis for emotional intelligence, a critical skill in building productive partnerships of all kinds—and one that is especially important in financial advising.

Indeed, research conducted by New York Life Investments (NYLI) found that empathy is a core attribute of a strong relationship between a financial advisor and their clients, particularly high net worth (HNW) women investors. Forty-four percent of those women told NYLI that it's extremely important for their advisor to learn about them as a person.

Advisors can demonstrate empathy by taking time to understand a client's unique situation and using that understanding to guide their investments. Ultimately, empathy can help advisors strengthen their client relationships and potentially increase satisfaction, retention, and referrals.

Empathy Sets the Course

A recent study by the Wall Street Journal and Barron's Group found that more than 40% of American financial advisors expect client demand to increase in the next three years across a range of asset classes, from sustainable funds to bonds to alternative investments. A similar percentage of advisors intend to increase their investments in teleconferences, webinars, and social media.

Staying on top of trends like these is a smart strategy. But without a deep knowledge of what drives their unique clients, financial advisors risk letting a cookie-cutter understanding of "what investors want" actually hinder their client relationships.

The same could be said for relying on stereotypes, including common misconceptions about women investors—that they're all risk-averse, disproportionately interested in socially responsible investing, or only want to work with female advisors. Applying these assumptions to all female clients without understanding their needs as individuals is only likely to alienate them.

In fact, the Wall Street Journal and Barron's Group report identifies personalization as a central factor driving new business for US advisors. And given the stereotypes women face, an advisor's ability to connect with these investors on a personal level is key. According to NYLI research, this is so important that 27% of women who changed advisors in the past two years did so because they believed they had no personal connection. More than 25% believe financial advisors generally struggle to relate to women. Worse, 37% of women feel patronized by their financial advisors, and 28% believe that advisors—consciously or unconsciously—push them out of financial conversations.

Ultimately, the data reveals that HNW women want an advisor who cares about them as a person—not a persona. An advisor who uses an empathetic approach treats female clients as individuals with unique needs and challenges and not as a category.

Putting Empathy in Action

Many female executives' leadership styles showcase what an empathetic approach could look like for financial advisors. Women often use relational management styles that focus on collaboration, participatory decision-making, and mentoring.

To collaborate, an advisor must understand their clients' goals and what drives them. Participatory decision-making involves actively soliciting and considering the opinions and insights of the other person before making a recommendation or decision. In this context, a financial advisor discusses relevant alternatives with their clients. This is also where mentoring enters. If a client understands some but not all the options, their financial advisor can offer instruction, guidance, or educational resources, depending on the client's need, desire, and level of familiarity. This is empathy in action.

In these and other approaches, communication is a central component of empathy. An empathetic advisor can read verbal and nonverbal cues about what a client is thinking or feeling. For example, in a discussion with a client, they're alert to cues such as facial expressions, body language, tone of voice, and more. These cues can help advisors better understand their clients and how to best communicate with them in the way they prefer.

Honing empathy as a skill will help advisors ask more in-depth and relevant questions, better understand client needs, and build the trust needed for clients to be frank and open. These empathetic actions ensure advisors listen to and respect each client, helping drive long-term satisfaction and, potentially, retention and referrals.

"New York Life Investments" is both a service mark, and the common trade name, of certain investment advisors affiliated with New York Life Insurance Company.

Insights presented in this report are derived from 2019 & 2020 studies conducted by NY Life Investments in partnership with RTi Research.

The writer of this report is a freelance writer and not affiliated with New York Life Investments


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