Assessing the Value of “Functional Quality” in Designing Financial Planning Engagements

In our Money Quotient training programs and research projects, we frequently refer to the groundbreaking work of professors Neeru Sharma and Paul G. Patterson at the University of New South Wales.  In the late 1990s, they conducted a study that identified communication effectiveness as the single most powerful determinant of a client’s perception of service quality, which, in turn, influenced their level of trust in and commitment to their financial planner.

Sharma and Patterson further explained that there are two fundamental components for assessing service quality:  technical quality and functional quality.  They described technical quality as the “core or promised service in financial planning” and referred, in particular, to the “competency of the adviser in achieving the best return on investment for their client, at acceptable levels of risk, thus assisting the clients to achieve their financial goals.”

Functional quality, in contrast, relates to how the core service is delivered.  According to Sharma and Patterson, “It is concerned with the courtesy and friendliness shown to the client, making efforts towards understanding his or her circumstances, displaying empathy, giving prompt service, responding to queries and complaints in a responsible, courteous, and timely manner.”

Growing Importance of Functional Quality

Without argument, the quantitative skills and knowledge that financial planners possess and utilize to serve their clients are critical to the success of the financial planning engagement.  However, the biggest challenge, explained Sharma and Patterson, is that most clients do not possess the technical knowledge or expertise required to intelligently and objectively evaluate the quality of financial advice delivered.

Furthermore, financial planning is a process where the core service (technical performance) unfolds over time. Consequently, the true success of a financial plan can only be realized over the long term and in the context of a long-term planner/client relationship.  If a client’s focus is on short-term performance, a competitor’s promise of higher returns may weaken their commitment to the current planner relationship and undermine the success of the client’s financial plan.

... the true success of a financial plan can only be realized over the long term and in the context of a long-term planner/client relationship Share on X

Therefore, Sharma and Patterson warned that as the core service becomes commoditized, competition increases and the industry matures,

 … it is the functional quality dimensions that become increasingly important as a means of creating a sustainable competitive advantage.

Then and Now

In the more than two decades that have passed since Sharma and Patterson made this prediction, the more personal and customized approach to delivering financial advice has become widely recognized as being the most effective way to develop successful client relationships.  For example, in a 2010 Journal of Financial Planning article, Dubofsky and Sussman observed the following:

Proficiency in financial analytics is necessary for financial planning, but for many practitioners, it is not sufficient.  In short, financial IQ is necessary, but financial IQ is not enough.  Emotional intelligence (EQ) augments and strengthens a planner’s financial skills. [1]

More recently, a Million Dollar Round Table (MDRT) study conducted early in the COVID-19 pandemic indicated that 85% of Americans would be more likely to trust recommendations from financial advisors who demonstrate emotional intelligence.

In a time of historic turmoil, advisors seeking to reassure, reposition or even retain clients must exhibit genuine empathy and compassion. [2]

In addition, 83% of survey respondents indicated that demonstrating emotional intelligence—not just giving lip service to these capabilities—is key to building quality client-advisor relationships.  A majority of the respondents also reported that they would be more likely to trust advice from advisors who:

  • Listen to and acknowledge their clients’ needs (57%)
  • Communicate in easily understood ways (57%)
  • Follow through on their word (55%)
  • Show that they care about their clients as people (52%)

Similarly, Ryan, Lamas, and Sin wrote in their 2020 Journal of Financial Planning article:

Rather than focus on outcomes like beating an index or benchmark, advisers can refocus their client’s attention to the more personal and fundamental “why” of investing.  Doing so highlights the central importance of long-term goals and defines good advice as guidance that helps people reach their goals…

…Reframing discussions around goals (versus returns) may be a better way to articulate the value of financial advice, and this recasting may help clients align their expectations with what they should do to succeed. [3]

More recently, an Edward Jones and Age Wave study conducted in June 2021 found that 70% of Americans view the pandemic as a financial wake-up call that caused them to pay more attention to their long-term finances.  The same report also noted that a majority of Americans have also become aware that there is a silver lining to the pandemic:

76% credit it with causing them to “refocus on what’s most important in life.”  This sentiment held true across age, gender, race/ethnicity, income, and region of the country. [4]

In times of national and global upheaval and resulting economic uncertainty, the functional quality dimensions of client service become especially valuable A client-centered, values-based approach is designed to facilitate the value assessment and goal affirmation processes that help keep clients progressing toward their long-term goals through turbulent times.

Carol Anderson

[1] Dubofsky, David, and Lyle Sussman. 2010. “The Bonding Continuum in Financial Planner-Client Relationships.” Journal of Financial Planning, October: 66-78

[2] MDRT Press Release.  2020, May 6. “MDRT study Finds Americans Deem Emotional Intelligence the Most Trustworthy Quality in an Advisor.” Accessed October 12, 2021,

[3] Murphy, Ryan O., Samantha Lamas, and Ray Sin. 2020. “Identifying What Investors Value in a Financial Advisor: Uncovering Opportunities and Pitfalls.” Journal of Financial Planning 33(7):44-52.

[4] Edward Jones and Agewave.  2021. The Four Pillars of the New Retirement: What a Difference a Year Makes, 2021. Accessed October 18, 2021,