New project aims to translate client reviews into ‘relationship alpha’

A new graduate capstone research project will apply analytics and artificial intelligence to financial advisor client testimonials in order to calculate a metric called “relationship alpha.”

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The program will track customer feedback from thousands of reviews from advisor directory Wealthtender and will use methods like natural language processing and machine learning to quantify the value of the relationship, according to the announcement last month by the Langston Wealth Management Center at the University of Texas at Austin’s McCombs School of Business. About a half dozen students in McCombs’ master of science in business analytics program began compiling the data this semester.

With a growing focus on how to calculate and communicate the potential worth of hiring an advisor, the research provides students with the opportunity to understand how wealth management is about more than investment portfolios. It is also a potential new means for the industry to measure and understand advisor value, said Ramesh K.S. Rao, a finance professor who is the founding director of the school’s Wealth Management Center. 

Additionally, relationship alpha could represent an alternative to traditional industry rankings based on assets under management.

“My argument is, just because you’re a big firm with a lot of AUM, that doesn’t mean you’re adding a lot of value for your client,” Rao said. “So we want rankings of advisors based on the perceived value of the client.”

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Fertile research area

Planners frequently criticize the industry’s fixation on AUM, as well as what they view as a misconception among the public, and even some fellow professionals, that portfolio management is the main reason to work with an advisor. 

The research should help refute those misperceptions through analysis of anecdotal data reflecting that what “really matters in a people business is how people respond to it,” said Matt Regan, president of Richmond, Virginia-based independent advisor services and registered investment advisory firm Wealthcare. Advisors will benefit from more digital tools that show that they are more like “life coaches” than investment managers, while firms recruiting them can more easily pitch their abilities to manage tasks like compliance and trade execution that don’t contribute as readily to perceived value, Regan said.

“All we’re saying here is that we’ll free you up to be able to spend more time with clients and more time with prospects,” Regan said. “The deeper client relationships are built around the planning process, not the investment process.”  

This research likely wouldn’t have been possible until 2021, when a Securities and Exchange Commission marketing rule gave RIAs and other advisory practices the leeway to seek and present client testimonials and reviews. But — whether out of compliance concerns or for other reasons — the industry still lags behind in its uptake of them, according to Brian Thorp, a McCombs alum who is the CEO of Wealthtender. He estimated that fewer than 10% of advisors have online reviews and pointed out that roughly 90% of the more than 5,000 of them in Wealthtender’s directory “don’t even mention investments or performance.”

The idea for the research came up after Thorp met Rao, who connected him with Michael Sury, the director of the master’s program’s financial analytics courses. Wealthtender has signed on as a $10,000 sponsor for the Wealth Management Center’s third annual conference next month, and Thorp paid for some drinks at a student event. But he said there are no underlying financial arrangements for the capstone program. 

Wealthtender

Besides the fact that the new relationship alpha statistics could shed more light on “all of the value that advisors are creating outside of investments,” Thorp sees potential for the professionals themselves and their firms to use the data to find their strengths and weaknesses. 

“You can start to see, ‘This advisor that we have is really good at creating feelings within their clients around these particular areas,'” he said.

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Industry-academia collaboration

Those types of lessons could begin to emerge later this year from the school’s Wealth Management Center. The center got its name in 2024 after a gift by Candace and John Langston, a husband-wife duo who are respectively a managing director and the CEO of investment banking and M&A advisory firm Republic Capital Group. The school’s advisory board includes some big names in wealth management, such as Tom Bradley, a managing director of Charles Schwab’s Schwab Advisor Services; Rajini Kodialam, a co-founder of Focus Financial Partners; and James Poer, the CEO of Kestra Holdings. The board and the “wealth management network partners” listed on the program’s website include representation from Dimensional Fund Advisors, LPL Financial, PIMCO, Steward Partners and Corient Private Wealth.

At 239 students, wealth management is the fastest-growing minor at McCombs, Rao noted. Through other collaborations with the industry, the students have learned BlackRock’s Aladdin portfolio management software, visited Morgan Stanley’s headquarters and gained access to courses on private investments through the Investments & Wealth Institute. The school also participates in research on cognitive decline and elder fraud risk and neuroscience in wealth management, and it is hosting a student competition in client analysis and case studies judged by industry professionals.

The Wealthtender research comes at a time in which “everyone in the industry believes there are some drastic changes needed, but they’re not exactly sure what they are,” Rao said. Just as the looming “great wealth transfer” will send tens of trillions of dollars from baby boomers to other generations, the industry is facing a talent shortage. Clients are “no longer just focusing on the stock-market returns provided by advisors,” Rao said. So the data pulled from client reviews could aid the industry in communicating advisors’ value.

“Advisors have to show how they’re contributing value in other ways,” Rao said. “‘Wealth’ is defined very broadly to include not just the money you have in your bank but also what you can do with the money to achieve your life goals. … When the clients are changing, the professionals have to change.”