Louis S. Harvey, who has made a career of analyzing and ranking investment products companies, says pure numbers may be overrated.
"One of the mistakes I think we make as an industry is to think of the future as being data and decisions," said Mr. Harvey, the founder of Dalbar Inc., a research and consulting firm in Boston. "We're really, I think, going to have to soften that edge, and recognize that we are human beings, and we do have emotions and sensitivities.
"Those are the things that drive our behavior, not data."
Since the early 1990s, Mr. Harvey has been adamant - and to date accurate - in arguing that the do-it-yourself trading opportunities on the Internet pose little threat to financial planners and full-service retail stockbrokers. Dalbar's research showed that above all, consumers wanted personalized advice from their financial advisers.
Now that the planners and brokers have embraced the Web, Mr. Harvey is taking that view a step further, saying human interaction has become even more important in the battle to serve wealthy customers.
Though he granted that some consumers eschew human interaction and want do their own trading, Mr. Harvey said that group is not growing as fast as some think. "That attitude dominates when you have between $100,000 and $250,000 to invest," he said. "As soon as you accumulate more than a quarter of a million dollars, even the most die-hard online trader wants to talk to a financial professional."
Paradoxically, the ubiquity of the Internet has made human contact more important, Mr. Harvey said.
"Historically, the financial professional had two advantages over their customers, the information advantage and the execution advantage," he said. "They knew more than their customers did, is the first, and the second is they were able to actually transact the business where their customers couldn't."
Both of those advantages have disappeared, he said. Customers can now access the same information as financial professionals, and just as quickly, and they can do their own trades over the Internet.
The future for the financial professionals will not lie in providing information that people can get themselves, he said. It will be "in understanding very specific customer situations, empathizing, and translating that into a strategy."
"We are not in a world of pure numbers," he said. People have different risk tolerances, he noted. "I might be willing to take some big risks with one side of my financial life, like my job, but I may be risk adverse when it comes to dealing with my kids. One has to take the multi-faceted aspect of any one person into consideration."
Mr. Harvey first encountered mutual funds in the 1960s, soon after he immigrated to the United States from Jamaica.
The Guatemalan-born Mr. Harvey was working for International Business Machines Corp. when he came to this country. "But then I got this little thing in the mail," he recalled. "It said: Put your date of birth here and we will help you with a financial plan for your future.
"In my wide-eyed innocence I filled it out, and this guy came and told me about these things called mutual funds, he said. "I fell hook, line, and sinker."
That first conversation with a salesman led to a job selling funds, then writing a newsletter about funds and starting his research and consulting firm.
The most interesting change he has seen is "the transformation from a pure product orientation to a full-service customer orientation," he said.
"When I entered the business in 1964, the only subjects of financial services were performance, yield, and return rates. That was literally the language of the business," he said. Mutual fund salespeople didn't call their clients and ask them what their goals and dreams were, whether they wanted to put their kids through college or hoped to have a great retirement, Mr. Harvey said.
"It was really in the early 1980s that the whole orientation towards the customer evolved, and transformed mutual funds from a little back-burner industry to one that is on the front page virtually every day," he said.
"Mutual funds are such an attractive structure to the consumer that I think every institution, just by definition, has to offer them," Mr. Harvey said. Banks had to get into the business to keep the money that used to sit in savings accounts from flowing out the door, he said.
Unfortunately, "mutual funds produce less revenue for the institutions than, say, deposit accounts," he noted, but banks have learned that "it really is better to offer mutual funds and keep the customer than not offer mutual funds. "
"We had the same situation with insurance companies," Mr. Harvey said. "It was immensely profitable to write life insurance policies, but what if consumers could accumulate enough assets that they didn't need a life insurance policy? Where does that leave the insurance company?" That is why "every major insurance company now offers mutual funds," along with products such as variable annuities, which combine fund features with the tax advantages of life insurance.
A recent aspect of Dalbar's research and consulting is the analysis of the communications that firms have with clients.
"He we study, in granular detail, all of the attributes of documents like statements and sales kits and reports that are issued to customers," Mr. Harvey said. Dalbar analyzes - for clients and as benchmarking research - whether documents are properly targeted towards the desired customers, accurate, and easy to understand.
Right now, he said, the firm is developing ratings of statements issued from financial services firms. "We're collecting the statements from all of the major companies that are involved in mutual funds, life insurance, annuities, and brokerage," he said. The research will then "evaluate each of them for whatever they're attempting to accomplish and then rate and rank them."
The firm also conducts customer opinion research, Mr. Harvey said. This is "where we try to find out what investors are thinking, what producers are thinking, and how they are reacting to various factors," he said, including the service and sales efforts of financial products companies.
As part of it's research on service, Dalbar developed computer models that score service interactions on hundreds of minute criteria, and the firm's employees call brokers and service lines to conduct business. For example, he said, if "somebody just simply didn't say thank you at the end of a call, and if it's joined with rushing you through the call, and asking who you are three times - all of those little things add up."
Dalbar's computer models break down human interactions into small details - such as saying "thank you" - and then scores the interactions people have with customer service at financial service firms, he said.
The firm has also developed ratings and rankings of Web sites that offer financial information. The rankings help consumers see which companies have the best and most useful sites, and show the companies how they stack up against their peers.
Another business line at Dalbar is a research program designed specifically for financial professionals such as brokers, agents, and financial planners. This program provides research that is similar to that which the company does for its larger institutional clients, but on "sort of a mini scale," Mr. Harvey said.
Overall, the firm has two missions -"One is raising the level of excellence within the financial services industry," he said, the other "giving the customers a fair view of what the institutions bring to the table."
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