To establish effective client communication, advisers need to first begin with how clients digest and understand information and work backwards from there.
Researcher and lecturer in financial planning Katherine Hunt said during the Portfolio Construction Forum Strategies Summit on Thursday morning that clients don’t necessarily see “what we think they’re seeing”.
“What matters is not what we say, but rather what our clients receive,” Hunt said.
Hunt explained that people have their own communication style which isn’t factored into how client communications are designed.
“We can say, this is my investment philosophy. Meanwhile, the client’s looking at it going what am I reading? So it’s all about what’s received that matters.”
If clients are not understanding the philosophy of their financial adviser, then the relationship is fractured, and they won’t get the most suitable advice.
“When we’re communicating our investment philosophies, we need to keep that in mind,” Hunt said.
She said that financial advisers must find the alignment between their investment philosophies and their clients’ needs to effectively communicate with their clients and provide a comprehensive and personal service.
“The key to investment philosophies is the communication and the human side of that.”
Hunt said alignment between investment philosophies and what their clients want will strengthen their relationships.
“Whether your clients are corporates, retail investors or financial advisors, those relationships are what matters, and using investment philosophies right will align to that.”
Human emotions are central to effective client communication and strengthening the relationship between clients and financial advisers.
Hunt emphasised “it’s our human nature that shows us what to value”.
“Emotions tell us what to value and that’s important when we’re constructing our portfolios and when we’re communicating with clients.”
According to Hunt, human factors such as universal emotions have a significant impact on the technical skills of financial advisers. Without emotional maturity, financial advisers can become impersonal and their communication skills may weaken.
Hunt stressed financial advisers should not think that human nature is getting in the way of their job.
“Our emotions are helpful, because otherwise we turn into robots, and none of us want to be robots or to be in a community with other robots,” Hunt said.
In a video presentation during the session, psychologist and speaker Susan David said she found in a study she completed at Harvard that “around a third of us push aside normal, natural human experiences, grief, anxiety and fear and there are real implications for this in terms of how they manage their wealth, health and lives”.
Potential biases are easy to fall into – Hunt gave an example regarding loss as most are impacted. She suggested that “we are all a little bit averse to loss”.
Loss aversion is a possible bias and can affect portfolio construction.
“It even impacts how we make trades,” Hunt said, noting different generations of clients have varying levels of tolerance for risk.
“The younger investors, they don’t really see [crypto] as massively risky. They see it as less risky than international shares.”
