As an investment advisor, how much time do you take to truly get to know your clients as people?
I’ve been working as an investment analyst, portfolio manager, investment coach, and wealth management advisor now for over 25 years, and if there’s one vital lesson I’ve learned over time it’s that people—individuals, couples, and families—are both complicated and conflicted when it comes to issues of money, retirement, wealth management, and investment planning.
There are many reasons for this.
First, I believe that people’s views about money (and security) can usually be traced back to early life experiences of pain and loss associated with family, friends, relationships, and love. These formative experiences deeply influence the development of a person’s “emotional template” and shape how they think about their assets, risk-taking, and their ability (or inability) to control people and events later in life. For example, the person who experiences significant personal or emotional loss early in life may, later in life, display little trust in others, a high need for security and control, and/or little tolerance for risk-taking when it comes to making investment decisions. I’ve often seen such dynamics at play when I work with certain clients or meet new client prospects for the first time.
Second, peoples’ attitudes about money can be profoundly shaped by what their parents, grandparents, or other authority figures told them about it when they were growing up. Was your client encouraged, from an early age, to be frugal and save for a rainy day? Or, did he or she grow up as the product of profligate parents? People often carry such “messages” about money with them into their adult lives.
Third, some people’s attitudes and feelings about money are shaped based on whether they grew up with wealth or achieved it for themselves. Hence, the popular, if somewhat simplistic image of wealth creators as world-class penny-pinchers, and wealth inheritors as world-class spendthrifts.
Still other people’s views about money are influenced by family dynamics, personal beliefs, college professors, religious faith, and philosophical convictions. Who made the greatest impression on your client as a child or young adult?
Finally, people’s attitudes about money (and risk-taking) are frequently driven by primal emotions like fear, greed, guilt, discomfort, even a sense of inadequacy. Such emotions can literally sweep over them, immobilizing them from making clear and rational choices or acting in their best interests at critical times.
People Are Complicated!
Yes, when it comes to money, people are complicated! Thus, it’s vital that we, as wealth advisors, understand our clients—be they individuals, couples, or families—as emotional and psychological “systems.” These systems are characterized by various dynamics which manifest themselves in specific behaviors and attitudes we can observe. It may require considerable time, experience, sensitivity, and maturity on our parts to understand and appreciate our clients in this light. However, only by understanding our clients as unique human systems can we hope to effectively advise them about their wealth management plans and priorities.
But wait, there’s more!
We, as wealth advisors, are complicated “systems” too. We too are shaped in our attitudes about money based on our life experience and internalized “scripts.” We see the world through our own set of filters; hence the bromide: “We see the world not as it is but as we are.” For example, if you, as a wealth advisor, grew up without a lot of money and find yourself counseling somebody who’s had it in their family for generations, you may harbor a hidden envy or even resentment about that client that can color your advice. Conversely, if you grew up with wealth as the son or daughter of a wealth creator, you may or may not (based on the parenting you received) have a deep appreciation and understanding of the first generation wealth creator you are now advising.
Understanding ourselves as systems (with our own inclinations, biases, subconscious beliefs, assumptions, aversions, and attractions) is thus just as important to our success as wealth management advisors as understanding the psyches (emotions, needs, fears, concerns, hopes, etc.) of our clients.
Finally, the stock market in which we operate as advisors is a system as well. Its unpredictability spooks investors, defies carefully designed financial models and elegant predictive reasoning, and leaves the world of investing looking like a crap shoot, a shot in the dark, a roll of the dice—an activity not for the faint of heart!
Why I Wrote This Book
It’s because of all the human and emotional variables at play in investment advisor-client relationships that I decided to write Working with the Emotional Investor: Financial Psychology for Wealth Managers. For, as the title of this book suggests, a client’s investment and wealth-building decisions are invariably colored and driven by a welter of emotional and psychological factors and forces—some of them obvious and clear, others subtle and hidden from easy view. Whether visible or hidden, these emotions and dynamics invariably surface when it comes to discussing matters of risk tolerance with a client, especially in times of marketplace volatility or uncertainty.
In my view, it’s our duty as responsible and ethical wealth advisors to educate ourselves about these forces and factors and how they drive all human behavior. It’s also incumbent on us to become conscientious students and observers of human nature in general and of our clients in particular. This is essential if we are to advise clients effectively and customize client investment “solutions” based on their personalities and degree of risk tolerance. Wealth advisors who are trained, sophisticated, and astute enough to probe and gain understanding of the emotional make-up of their clients will be able to connect with clients (be they individuals, couples, or families) in ways other advisors cannot. Indeed, they’ll be able to co-create investment strategies and plans with their clients that are custom-suited to each client’s personality, priorities, goals, and temperament.
By reading Working with the Emotional Investor you’ll learn the following:
In Working with the Emotional Investor you’ll also learn to:
Working with the Emotional Investor is divided into three distinct parts.
In Part I, I explain and elaborate on my theory of emotional templating and how it explains a client’s appetite for risk and view of the world around them. I share deeply personal experiences of emotional loss from my own childhood as examples to support my thesis that all people are essentially emotional in their responses to the external environment. A person’s emotional vulnerabilities become particularly evident in situations of danger or pressure, such as when an investor faces marketplace uncertainty and volatility as they set personal financial goals. Given such realities, I argue that the wealth advisor must develop finely tuned interpersonal skills to flesh out the emotional profiles of their clients and must understand them as fully formed human beings, shaped by their unique experiences.
In Part II, I lay out a systematic framework that wealth advisors can use to nurture, manage, and maintain strong relationships with clients. Based on years of working with my own clients, this framework includes a proprietary method for “contracting” with clients early in the client-advisor process; establishing rapport and trust; asking clients powerful questions; setting goals and expectations; defining metrics of success; designing investment approaches that align with the client’s goals, values, and priorities; and monitoring and measuring success with financial performance over time. Also in this section, I discuss different types of clients that wealth advisors are likely to encounter in their work, and the importance of advising clients by cultivating a combination of agility, flexibility, creativity and humility. I draw heavily from the theories, ideas, and best practices of social psychology, systems thinking, neuroscience, and emotional intelligence to articulate a highly practical typology of client types that I have developed over the course of my 25-plus years in investments.
Finally, in Part III, I speak in depth about stewardship and the principles of servant leadership that I believe are critical for wealth advisors to bring to their work with clients. By adopting the principles of “servanthood” in our work with clients, we can keep our professional egos and agendas in check and ensure that the investment plans we co-create with clients are strongly aligned with their personal values, financial goals, and investment and wealth management priorities.
While much of my client work has been with high net worth individuals and families, this book has relevance and application for any wealth advisor who deals with the assets of others, whether those assets be $100,000, $1,000,000, $1,000,000,000, or even more!
Working with the Emotional Investor articulates a new, radical, yet highly practical approach to building and nurturing client relationships in the wealth management industry today. Some of what I say in this book you may find provocative. I hope you do! I hope also that you will see the relevance of the tools and case studies I present in this book to your own work with clients.
It’s my conviction that by reading and reflecting on what is contained on the following pages, it will spark ideas and generate insights that will enrich your own relationships with current and future clients, resulting in “happy returns” for you both!