Why wealth managers are assessing clients’ personalities

By Mark Burgess | May 9, 2022 | Last updated on November 9, 2023
11 min read
personality test
Gil Martinez

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.

The first thing to note about client personality evaluations by wealth management firms is that these aren’t tests. Clients may be asked the average lifespan of a bird-like animal from the Late Jurassic period. They may be asked to rate their vocabulary, or how deeply they feel others’ emotions. They may be asked the same questions twice, in slightly different ways, to tease out subtle preferences and inconsistencies.

But these are assessments, not tests. There are no wrong answers (for the most part).

Lisa Brenneman, head of behavioural finance with TD Wealth, said the word “test” evokes grades and stress. TD’s Wealth Personality assessment, which she helped develop, identifies client blind spots to help advisors tailor advice.

“There’s nothing wrong with anyone’s personality,” Brenneman said. “It’s who you are. That’s why we use the word ‘assessment’.”

TD is one of several firms getting into the personality game. As financial advice moves away from picking stocks and collecting mutual fund commissions, firms are turning to behavioural finance for an edge.

“Clients aren’t looking for just investment management,” Brenneman said. “They’re looking for someone who knows them deeply and is going to help them get to their goals in the best way possible.”

TD Wealth rolled out personality assessments to its high-net-worth segment in 2017 but is now using them across the advice channel. Brenneman linked the strategy to an uptick in referrals.

Frank Danielson, senior financial planner with Danielson Group Wealth Management at Assante Capital Management Ltd. in Vancouver, has been using personality assessments for two decades.

“This is a more and more competitive industry, and relationships and understanding clients are critically important,” he said. “Advisors who aren’t supporting clients as coaches through life are going to struggle to add value.”

But how comfortable are clients with these “assessments,” and how should you be using them?

The big five and beyond

Attempts to evaluate personality date back millennia. Hippocrates pioneered personality types in ancient Greece with his four temperaments based on bodily fluids: sanguine, choleric, melancholic and phlegmatic.

The five-factor model of personality, also known as the “big five” personality traits, was developed in the 1980s and 1990s. It’s based on the lexical hypothesis, which takes the thousands of adjectives used to describe people and groups them using factor analysis.

The big five, commonly represented using the acronym OCEAN (openness to experience, conscientiousness, extroversion, agreeableness and neuroticism — see “The big five”), is regarded as stable across a person’s lifetime. If you were an extroverted child, you’re probably an extroverted adult. The big five have been used to predict a person’s religiousness, work ethic, happiness and academic success. It was only a matter of time before finance took an interest.

Recent studies have used the traits to predict the likelihood of becoming a millionaire and to anticipate withdrawal rates in retirement. Wealth management firms’ interest revolves primarily around risk profiles and client engagement.

Language is still at the core of the evaluations. TD uses the standard big five assessment — 50 statements about which respondents agree or disagree (see “Sample statements”) — but tailors the results to the financial context. That means tweaking the terminology.

When presenting results to clients, “neuroticism” becomes a spectrum from “calm under pressure” to “quick to react.” “Agreeableness” is a scale from “questioning” to “amenable.” That way advisors don’t have to tell clients they’re disagreeable.

“That’s a really horrible thing to say,” Brenneman said.

So what might you gain by learning that a client has a reactive personality?

Brenneman said such information becomes useful during a severe market downturn or any other stressful financial situation (a client having a baby, for example, or going through a divorce). Those who score higher on the reactive scale are likely to need more support and should be at the top of the advisor’s list of calls. “Nobody wants to hear about a client stewing and being upset and not hearing from their advisor,” she said.

Those who score high for conscientiousness, on the other hand (on a scale of “in the moment” to “self-disciplined”), may require less support. “High conscientiousness is very much tied to goal-based planning, which is tied to sticking it out during a market downturn,” Brenneman said.

Conscientious clients are more likely to enjoy the financial planning process. These are the note-takers, the “to-do” list makers, the clients eager to set up monthly portfolio contributions. Clients who score lower will need more prodding with their plans: charts on compound interest and other visuals demonstrating the risks of not achieving financial goals may be necessary, Brenneman said. “They need that goal-based plan more than anybody.”

A client with a low extroversion score (more “reflective” than “spontaneous,” using TD’s terms) may need more time to make financial decisions. An advisor should be prepared to provide them with additional research and schedule a follow-up meeting, she said. And a more open client (more “innovative” than “conventional”) may be more interested in virtual meetings or ESG products.

Finally, a client’s agreeableness rating may help an advisor interpret cues. A head nod from an agreeable person may not mean the same thing as it does from someone more comfortable asking questions. “You don’t know if they’re agreeing just to make the conversation go away or if they really agree,” Brenneman said. Understanding the difference is “incredibly helpful.”

TD chose the standard big five assessment because it’s benefited from decades of research and because it’s in the public domain — a client could take the same assessment for free online. This makes it transparent, Brenneman said: “We don’t want something where clients wonder what’s going on in the background.”

Clients take the assessment in the advisor’s presence. That way, she said, they can ask questions and aren’t left wondering: “Why would a financial services firm want to know that?”

Behavioural thinking

So why would a financial services firm want to know how long you think a prehistoric bird lived for? Or whether you would rather receive $160 today or $246 in 12 months? These are two of the questions posed in Seattle-based Syntoniq’s assessment, which is used in Canada by fintech Pascal WealthTech.

“We’re trying to understand how people think behaviourally when they make decisions,” said Syntoniq CEO Brian Pasalich.

While TD stuck with the big five assessment, customizing the report to clients but not the questionnaire, other firms have built upon the standard personality test to try to divine characteristics more specifically tied to financial behaviour.

For Syntoniq, that means evaluating clients on a handful of behavioural traits: overconfidence, representativeness, anchoring, loss aversion and others.

For example: a client is asked whether a bird from the Late Jurassic era lives more or less than 104 years. When, in a follow-up question, the client is asked what they think the bird’s actual lifespan is, someone more susceptible to anchoring — fixating on the first information received — may give an answer close to 104.

This matters because a client with low anchoring may be more open-minded and receptive to new information, according to Syntoniq. They may be more comfortable changing their opinions. They may also spend too much time researching, and overthink simple decisions.

Pasalich said knowledge about this type of financial behaviour is more valuable to an advisor than grouping clients into the big five.

“If I understand someone’s highly loss averse, I’m having a different conversation. That’s behaviour-based engagement,” he said.

Greg Davies, head of behavioural finance with London, U.K.-based Oxford Risk, said that while the big five personality traits are stable and well-studied, they’re also broad. “In all sorts of financial decision-making, introversion/extroversion doesn’t actually matter that much,” he said.

“It would be plausible to think that people who are more extroverted might be more confident investors. We haven’t seen those correlations.”

Oxford now uses up to 18 different “scales,” rather than five. The assessment is similar to OCEAN, featuring a series of simple statements with which respondents agree or disagree to varying degrees. And the goal is much the same: hyper-personalized communications.

“Some of these scales are relevant to what is the right level of risk you should take. But far more of them are relevant to: ‘How should I communicate with this person over the course of the investment cycle?’” Davies said. “When markets drop, which clients should advisors spend their valuable time [with] first, and [with] which messages? That’s the stuff that can really start to make advisors more powerful.”

Assante’s Danielson uses a tool called Financial DNA to group clients into one of 10 “natural behaviour styles.” These styles fall within a quadrant of “fast paced” to “moves carefully” and “results-oriented” to “relationship-oriented.”

“We want to support you in a way that’s more natural, in terms of who you are,” Danielson said. If a client is a “strategist,” Danielson opens a meeting by asking the top three things they hope to achieve. “If you don’t ask that, they’re not even going to listen to you until they get to their stuff. They want to dive right in. You need to address all of their needs first so you can get them to participate in what you want to do.”

A “reflective thinker” may be eager to discuss a budget, but a “community builder” should have a “spending plan” instead. “A budget to a community builder or an engager would be an affront to their personal life,” Danielson said.

Like Oxford’s, the Financial DNA assessment builds on the OCEAN test. Rather than agreeing or disagreeing with a personality statement, respondents are given the statements in groups of three and asked to rank which is most and least true. The test’s algorithm adapts to the answers; the statements dynamically regroup to tease out subtle preferences. This is repeated 46 times. In some cases, all three options in this “forced-choice” assessment may be true (or false) but the respondent must still rank them.

The result is a summary document that highlights a client’s two strongest “behavioural factors” (reserved and patient, for example) as well as behavioural biases that could be exhibited by those factors (e.g., mental accounting and status quo bias).

The Syntoniq assessment — the one with the prehistoric bird — begins with those unusual questions to evaluate a client’s “thinking style.” Next come behavioural questions (the “money today versus slightly more money later” question described earlier), followed by questions to assess financial knowledge and then risk. The assessment is set up this way, Pasalich said, because clients coming to see their financial advisor are primed to answer a certain way. Opening with unorthodox questions leads to more openness when clients get to the financial knowledge and risk questions, he said.

Nonetheless, everyone agreed that contextualizing the assessment is important. No matter which platform is used, advisors should explain that it’s a tool to help understand the client and how they make decisions. Ask them if they’re comfortable with this. And let them know there’s no good or bad profile.

Even a negative reaction to an assessment can have a positive outcome. A client objecting to a characterization still opens the relationship with the advisor, Brenneman said, leading to a discussion they otherwise wouldn’t have.

Beyond engagement

While understanding a client’s personality may help advisors tailor communications, how can it help manage investments?

For TD, the wealth personality assessment is one of five “modules” used to learn about clients. Risk tolerance and risk capacity are part of separate assessments for the know-your-client (KYC) profile, which leads to portfolio construction. “That you don’t want to mess with,” Brenneman said of the KYC process. The wealth personality “adds the colour and context.”

Danielson uses the Financial DNA assessment as one of four parts of the KYC process. There’s also the standard risk score for compliance, the discussion about goals, and the examination of assets and means.

In assessing risk tolerance, the standard score for compliance is like an X-ray, Danielson said, while the personality assessment is more like an MRI. It’s also important to examine how the two interact. A standard KYC questionnaire may say a client can stomach big losses, but the personality assessment could suggest otherwise.

“That’s super important if you’re building a portfolio for a client who can’t handle the experience or the emotionality of a loss,” Danielson said. “They’re saying they’re high risk, [but] as soon as the going gets tough they’re going to walk away.”

The Syntoniq assessment, which also tests for financial knowledge, goes further and produces a risk score range for compliance. Advisors can then evaluate that score against other factors in the assessment such as a client’s loss aversion rating. A client with a high risk score who also exhibits high loss aversion will need additional support during a market downturn, Pasalich said.

The personality assessment platforms all produce extensive reports advisors can review with clients, but that may not be necessary or appropriate in all cases. Syntoniq provides a one-page summary, for example, within its lengthy report. Depending on a client’s personality type, they may not be interested in the details.

Danielson said that, after initially going over the assessments with clients, it’s useful for advisors to review the reports privately prior to discussing big financial decisions. In those moments, the insights can be crucial for coaching, he said.

“We’re just trying to keep them from making a big mistake,” Danielson said. “If you’re not thinking about a client’s [financial] DNA in these decisions, you’re probably missing the boat.”

The big five

Openness to experience: intellectual curiosity, thoughtfulness, imagination, creativity

Conscientiousness: productiveness, organization, foresight, sense of responsibility

Extroversion: sociability, assertiveness, energy

Agreeableness: empathy, trust in others, respectfulness

Neuroticism: moodiness, irritability, anxiety and depression

Sample statements from a big five questionnaire

Respondents rate 50 statements from “very inaccurate” to “very accurate.”

  • Always known at social gatherings
  • Leave my belongings around
  • Get stressed out easily
  • Have a rich vocabulary
  • Not interested in other people’s problems
  • Point out mistakes people make in blunt terms
  • Follow a schedule
  • Have a vivid imagination

Personality pairing

Is it better if advisors and clients have similar personalities? Diversity of views and the ability to challenge a client are beneficial, Oxford Risk’s Greg Davies said, but similarity is ultimately more valuable.

“The emotional comfort that you get from an advisor you trust and like is more important than an advisor who’s there to challenge you,” he said. And an advisor, who is the expert in the relationship, should be willing to challenge a client anyway.

Members of Frank Danielson’s team all take personality assessments for purposes of pairing advisors with clients. They may also use Financial DNA to filter out prospects. A potential client with a propensity for risk who’s highly emotional with losses, or who takes control of decision-making but also changes plans easily, may not be worth the trouble.

Lisa Brenneman said TD Wealth is examining how personality assessments can be used for advisors. When it comes to matching clients to advisors, though, she said factors such as experience, values and specialty needs are equally important. “Personality is an important factor in pairing an advisor with a client but it’s not the only factor,” she said.

Davies also noted there’s a wider range of client personalities than exists within the advisor pool. Advisors tend to have higher risk tolerance, higher composure and higher confidence. “You can never completely match clients to advisors because there’s a whole bunch of client types where there just won’t be advisors like them,” he said.

Plus, many client-advisor relationships are established naturally though connections. “Doing the dating-service treatment is probably not where the time is most valuably spent,” Davies said.

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Mark Burgess

Mark was the managing editor of Advisor.ca from 2017 to 2024.