Some clients are good with money and some aren’t. Or is it just that some have access to good advisers, systems and visions for the future, while others don’t? Research indicates that our personality traits like self-control and optimism are not only set in stone and consistent across contexts, but also impact our daily financial decisions. That means quantifying client personalities can help develop and deliver advice in the client’s best interests.
There are two key personality traits that impact clients, and financial advisers can leverage both to develop appropriate advice, and deliver advice recommendations. These are self-control and optimism.
Clients with low self-control are those who have a tendency to sabotage their own financial plan through impulsive purchases. Clients with high optimism are those who also have a tendency to self-sabotage through working less, retiring earlier, saving less and not paying attention to fees.
Financial advisers are already experts in determining client goals and needs, and having self-control and optimism front of mind can help in delivering epic advice. Asking questions like “tell me about some recent impulsive decisions you have made” elicits an understanding of self-control issues, while asking “What does the future look like for you?” will help bring out information on client optimism levels.
The interesting part, though, is how you use that information to better serve the client.
Clients with low self-control say things like “I just don’t know where my income goes” and “I want help with sticking to a budget”, or “I drive a financed Tesla and I just graduated from university three years ago”.
These clients know about their financial impulse control issues, and conversations around it can be very empowering for them. Advice for these clients can include an automated cash flow system which restricts their access to liquid assets via cards while increasing their use of physical cash or pre-loaded cards.
These clients understand that strategies which ‘save them from themselves’ are valuable, and this can be an open and upfront discussion and integrated into the advice strategy.
On the other hand, clients with high self control are more likely to be akin to the famous Catalan architect Antoni Gaudi* (i.e. wearing rags pinned together with safety pins, living in a tiny hut, while having billions in the bank).
Financial advisers can help these clients through documenting their specific goals (e.g. an Antarctica holiday), financing the goal through strategies and prodding the client to actually do what they said they wanted to do (and not hoard their hard-earned wealth).
Low Optimism clients are more difficult because they are so fee sensitive – about any of the underlying fees, associated with strategies or products. These clients benefit from clear strategies that quantify their goal achievement in clear language (i.e. you can retire NOW), as otherwise they will work forever, regardless of their financial situation, just to be sure they do not end up destitute.
With such high fee sensitivity, these clients need full transparency and articulation regarding each of the fees with each of the strategies and products, with clear linkage to their goals, and to the ‘pain’ they are avoiding by achieving their goals. These clients need advisers to dedicate a disproportionate amount of time to discussing each and every fee.
One would imagine that clients with high levels of optimism would be ideal. And to some extent they are – they are certainly not concerned with fees. However, overly optimistic clients are more likely to retire earlier (even without enough assets, nor a plan), save less, re-marry and work less. These clients say things like “life is so great since you gave us our financial plan, now we feel so on track we have both gone part-time at work and are spending more time as a family” (even if the plan in that scenario was based on them being full-time).
These clients need automatic savings built into their strategies, with a high-touch review process (every month or two) to remind the clients about their goals, and what needs to happen for their goals to be achieved. High optimism clients are focused on long-term goal achievement, and fees can be communicated in those terms. These clients understand that fees are an important part of having the best strategy and products to achieve their goals.
*Katherine Hunt suffers from high self-control and from extremely high levels of optimism.