Measuring Results: Qualitative vs. Quantitative Data in Financial Services

Success is a multifaceted pursuit that extends beyond the numbers. Advisors strive to optimize their go-to-market strategies, enhance client satisfaction and retention, and ultimately achieve positive outcomes regarding additional assets and good-fit new clients. In this pursuit, two distinct types of data, qualitative and quantitative, play pivotal roles in evaluating results and the process or systems to get there. If you’re seeking comprehensive insights into your performance, it’s essential to understand the nuances of each type of data and their associated data points.

Quantitative Data: The Numbers Game

Quantitative data involves using measurable metrics and numerical values to objectively assess performance. For financial advisors, these metrics can range from assets under management (AUM), client lifetime value, or acquisition costs to return on investment (ROI) for different marketing, tech, or operations spending types. Of course, portfolio performance is a whole other animal, as are benchmark market returns, as far as factors you can’t control that are not worth delving into here.

One clear advantage of quantitative data is its precision and clarity. It provides a concrete, numerical snapshot of a financial advisor’s success, making tracking progress and setting benchmarks easier. For example, a financial advisor can measure their success by examining KPIs like percentage increase in AUM over a specific period. If the AUM has grown by 15%, it’s a tangible indicator of success, right? Many of the AUM-based awards in major publications would have you think so, but a percentage increase in AUM alone doesn’t demonstrate alpha. It’s more important to consider asset growth minus market returns or new AUM-added gross revenue minus total client acquisition costs.

Similarly, new client growth rates are more meaningful once you spotlight their average investable assets or profitability, especially when new client attrition can be as high as 70% in the first 3 years. We’ve written before about client lifetime value, which might be a good refresher on these concepts.

Other quantitative evaluations may include:

• Client Retention Rate
• Client Referral Rate
• Client Survey – Net Promoter Score
• Peer Group or Competitor Analysis (new client growth %, new asset growth %)

What these quantitative factors have in common is an emphasis on placing specific dollar amounts on your activities (whether that’s digital marketing, client events, or advisor networking), in addition to recognizing your own baselines and more extensive industry benchmarks provided by annual studies from Schwab, Dimensional, etc.  

Qualitative Data: Beyond the Numbers

While quantitative data provide a robust foundation for assessing performance, it often needs to catch up in capturing the full spectrum of client experiences and satisfaction. This is where qualitative factors come into play, offering a more nuanced and subjective view of a financial advisor’s impact.

Qualitative data encompasses non-numeric information, such as client testimonials, feedback, and the overall client experience. For financial advisors, this could mean understanding the level of trust clients place in their advice, the clarity of communication, and the perceived value of the services rendered. Of course, you can easily quantify these areas in a client survey with a simple ranking or 1-5 scale. Still, it’s often asking for open-ended, non-leading feedback that offers the most significant level of insight. Moreover, you should keep the feedback process open to the once-a-year or biannual survey your vendor, custodian, or fund company may send out.

These qualitative data points can include questions like:

• What could we be doing better from a client service or communication aspect?
• What are we doing well that you want to see more of from us?
• What are we doing or offering that you don’t find helpful or don’t need?
• How are you feeling about the current market situation? How about your personal financial situation?

Consider a scenario where a financial advisor successfully navigates a client through a challenging market downturn (hey, maybe even a pandemic-driven recession turned inflation-mired limbo). While the quantitative data might show the preservation of capital, the qualitative data could capture the client’s gratitude, loyalty, and the peace of mind they experienced throughout the process. These intangible elements are crucial in building long-term client relationships and fostering trust. Those elements naturally lead to great referrals or held-away assets brought over.

Remember, too, that the client experience flows both ways. Acknowledging quantitative cases when you have a not-a-great-fit client or just a general PITA despite high AUM, profitability, or lifetime value is essential. Some firms even segment clients into A, B, C, & D buckets based on a back-of-the-napkin equation:

• A: I really enjoy working with this client, and they are a great fit based on ##investable assets/profitability / ideal client profile match re: geography, demographics, behavioral attributes##
• B: Enjoy working with this client, and they are a good or above average fit based on #xyz#
• C: Enjoy working with this client, but they are a below-average fit based on #xyz# – OR – Do not enjoy working with this client, but they are a good or above-average fit based on #xyz#
• D: Don’t enjoy working with this client, and they are a bad or below average fit based on #xyz#

Many firms go through the strategy and marketing work of defining who they want to serve (e.g., personas) and in what ways (e.g., service lines) but then toss that out of the window when converting leads to prospects or prospects to clients. An excellent qualitative process or system for defining the client experience or advisor experience can mitigate some of the lower conversion rates attributable to cold inbound leads and prospects and the higher attrition rate for newer clients.

Striking a Balance

While quantitative and qualitative data offer distinct perspectives, the most effective financial advisors recognize the value of integrating both types of information. By striking a balance between the numbers and the narratives, advisors can run businesses that thrive financially and resonate with clients on a personal level.

For instance, a financial advisor could analyze quantitative data to assess the growth of their client base and AUM. Simultaneously, they could collect qualitative data through client surveys to gauge satisfaction levels, understand communication preferences, and identify areas for improvement.

This balanced approach is especially crucial in evaluating the success of marketing strategies. While quantitative metrics like median client AUM, client referral or retention rate, and website traffic offer insights, qualitative data from client feedback can reveal the emotional impact of marketing messages and whether they align with the advisor’s brand.

Let’s explore a few real-world examples:

Client Retention and Satisfaction

▫ Quantitative Metric: Retention Rate

▫ Qualitative Insight: Client Feedback

By combining retention rates with qualitative feedback, financial advisors can identify patterns of satisfaction (or dissatisfaction), allowing them to refine their service approach and enhance client relationships.

Investment Performance

▫ Quantitative Metric: AUM Growth or Net Organic Growth

▫ Qualitative Insight: Client Perception of Investment Strategy or Tax Efficiency

While the numbers indicate financial success, understanding how clients perceive investment strategies provides valuable insights. Qualitative data can reveal whether clients feel confident and well-informed about their investment decisions.

Marketing Effectiveness

▫ Quantitative Metric: Lead Conversion Rates

▫ Qualitative Insight: Client Perception of Marketing Messages

Analyzing lead conversion rates alongside qualitative feedback on marketing messages helps financial advisors tailor their communication strategies to resonate with their target audience. This is mainly supported by noting in initial consultations and discovery meetings how the prospect found you and what service line or life event they indicate needing help with, in addition to asking clients what type of topics they want to hear more about and in what formats.

Final Thoughts

Ultimately, the balance of qualitative and quantitative data is not a choice between one or the other but a recognition of the overlap between the two. During the strategy or niche definition process, we like to prompt decision-makers with a yes…and. Many financial advisors have a good quantitative grasp on their ideal client types – age range, zip codes, minimum investable assets – but a less polished understanding of where their clients spend time, their networks, their fee sensitivity, their personality type, etc.

The advisors and firms that fuse quantitative metrics and qualitative feedback empower their practices to adapt, refine, and excel in an industry where understanding the intricacies of client relationships is as vital as optimizing investment portfolios.

Are you looking for help kickstarting your data analytics program or deciphering the data you’ve accumulated? Don’t hesitate to reach out to the Beyond AUM team for a second opinion!