This article appears in the May 2022 issue of Advisor’s Edge magazine. Subscribe to the print edition, read the digital edition or read the articles online.
Advisors say they often feel like therapists. As much as relationships with clients are based on numbers — assets, returns, compounding, withdrawals — discussions about money quickly turn personal. And when they do, the idea that you’re dealing with strictly rational economic actors doesn’t hold.
I recently took four firms’ personality or behavioural tests (see story, “Why wealth managers are assessing clients’ personalities”). The assessments are gaining traction as another way to learn about clients and understand how they make financial decisions. The methods ranged from “big five” personality questionnaires to more explicitly behavioural evaluations.
But while the assessments themselves differed, my results across all four were quite similar. I took that as a good sign.
“Reflective,” “reserved,” “patient” and “analytical” kept popping up. So did “delaying key decisions” and “getting stuck with too much information.” On the last of three video calls in one day to review my results, I was told I often feel “drained by too much interaction with others.” This made me feel seen, to use the popular phrase.
But how “seen” do clients want to feel by their financial institution? There’s a line between feeling recognized and feeling exposed. Advisors should take care to remain on the right side. Without proper preparation and context, the questionnaires could seem invasive.
Asking clients a series of questions so you can stick a label on them may also appear reductive. Each of us contains multitudes, as Walt Whitman attested. Not everyone will be eager to partake in another segmenting exercise.
Even if clients are game, some advisors may be reluctant to play armchair psychologist. Just because you sometimes feel like a therapist doesn’t mean you should behave like one. Your office may have undergone changes over the last two years, but adding a couch for clients to lie on shouldn’t be one of them.
Fortunately, that’s not what’s going on here. And firms using the assessments provide advisors with behavioural science training.
From my experience, the exercise provides value. The results give advisors a way to categorize clients, but also a way to think about relationships. Advisors should know, for example, that a reflective client may prefer to digest information and make a decision in a follow-up meeting. Or that an amenable client may nod along in agreement to avoid confrontation. Or that an introverted client may get cagey as a Zoom call approaches the 45-minute mark. An advisor who’s paying attention will learn these tendencies over time, but why not take the shortcut?
Shortcuts don’t always work. I found that a couple of my recurring personality traits didn’t necessarily apply to financial decision-making. I may be open to new ideas or experiences, but that doesn’t translate to a desire for innovative investment products or communication methods with my advisor, as some assessments suggested. In that realm, I’m more likely to prefer the vanilla option.
My personality was also pegged as more risk averse than I consider my investing approach to be. Personality is only part of a risk assessment, I was reminded, which also features a standard risk score and good, old-fashioned discussions about goals and means. Those factors can change throughout a person’s life, while personality traits are more hard-wired and likely to surface during moments of stress. I like to think that years of financial reporting have insulated me from my worst panic-selling instincts, but I guess that’s why they’re called “blind spots.”
Everyone I spoke with for the article was also keen to point out that any objections I raised led to an interesting discussion. This was true. If I disagreed with a characterization, I was sharing information about myself I may not have otherwise divulged. Particularly since I “may appear withdrawn and distant,” as one assessment put it — a characterization I didn’t dispute.
Mark Burgess is managing editor of Advisor’s Edge. Email him at firstname.lastname@example.org.