Return on assets vs. return on experience: Which one matters more to your clients?

Are you providing value to your clients through their return on assets (ROA)? The answer for most advisers is yes, of course. ROA is certainly a key component to your role as a financial adviser.

But, how would you score your value based upon return on the experience (ROX)? What is the return on the experience you’re providing to your investor clients?

We believe the value you provide to your clients extends far beyond the amount on their statements. In fact, we’ve created a series of posts which analyse the real value advisers deliver to their clients in their portfolios, in vital services advisers provide, and right now in particular, in helping investors avoid behavioural mistakes. Check out our Value of an Adviser page to learn more.

Ask yourself:

  • How am I communicating my value to my clients?
  • How am I providing a valuable experience for my clients?

If you’re not sure, the good news is the return on experience is measurable. ROX is measured by a combination of client turnover, the frequency of clients voicing their appreciation and the number of client referrals, to name a few. You are what you measure. Put yourself in your clients' shoes and consider which of the following scenarios you are more likely to share with your family, friends and colleagues:

  • Sharing the rate of return your adviser was able to achieve on your investment portfolio (ROA)
  • Having an adviser help you to successfully plan and fund university for your child (ROX)
  • Working with an adviser who acted as your guide and listened to you when uncertainty wasn’t just in the markets, but in your home, your country and across the globe (ROX)

If you measure your success based on your progress towards helping your clients achieve their desired goals or outcomes, then that's what you'll work to deliver. And that's what your clients will demand. I’ve spoken to countless advisers and their clients since the beginning of the year, and I believe that advisers focusing on the ROX scenarios above are more likely to see the most success in the months to come.

The value you may provide to your clients today could be more powerful than ever

For some of you, this might be the first time you’ve experienced this level of volatility and uncertainty in the markets. For others, you might be having flashbacks circa 2007-2009. Either way, behavioural finance has taught us that the pain of losing is psychologically twice as powerful as the joy we experience from gains. If we apply this to your interactions with clients in the current investing (and personal) landscape we’re facing, the value you may provide to your clients today could be more powerful than ever. We believe it’s important to articulate your value to clients to make sure they know what special value they receive.

Be the one who handles turbulence with poise

A colleague and mentor of mine recently shared this analogy: Imagine you’re on a plane on your way to a long-anticipated holiday. You are seated next to your two children who are flying for the first time. Without warning, the plane hits some unusually rough air, and your children experience the feeling of the plane seemingly dropping from the sky. What do they do?

They look to you to see how you react to the turbulence. They will react, and feel, based on how they see you react. How you handle the turbulence will either confirm their fears or offer them solace. Being the one who handles turbulence with poise allows them to refocus on their destination. For your children, it may be a warm, sandy beach. For your clients, it’s likely retiring someday with the opportunity to sustain their desired lifestyle after working hard for so many years.

The bottom line

From where I sit, the return on experience is greater than the return on assets:

ROX > ROA

This year, COVID-19 related market turbulence and economic hardships are piling up. And fight-or-flight tendencies are causing some investors to follow the herd into costly mistakes. In the face of this year’s adversities, be the one who handles turbulence with poise.

At Russell Investments, we aim to help advisers communicate their value to clients. We see the advantages you create for your clients. We have ideas and resources we would love to share with you. Let us know if we can help.

Any opinion expressed is that of Russell Investments, is not a statement of fact, is subject to change and does not constitute investment advice.