“Where did you hear that?”
Have you ever had a client tell you a “fact’’ about investing and financial products and services that you know to be incorrect? Have you ever met a client in an initial meeting whose ideas about investing risk and rewards are way off base?
Investors, especially the ones who are new to investing, can enter the fray with a wide spectrum of ideas as to what works, what doesn’t work, what they need to watch out for and what they need to do RIGHT NOW! While some investors have worthwhile information and valuable ideas about how they want to proceed, others can come to their first meeting with advisors with preconceived notions about the relationship they are about to enter, and often those notions are negative towards advisors.
Investors listen to many voices. They may very well listen to what their advisor says, but they also listen to what their co-workers say. They get financial advice from their parents, from their siblings, from their friends. They get advice from the TV, from the internet, from newspapers or magazines.
Advisors should not be put in a position where they are competing with these alternate voices, but occasionally they are. It is unwise to argue against these voices, especially when they are family members, but advisors should not be dissuaded from expressing their knowledgeable point of view on a product or service or the way an investor proceeds with investments just because a client has information from a well-informed brother-in-law.
In its wealth segmentation study Financial Behaviors and the Investors’ Mindset, Spectrem asked investors in three different wealth segments who contributes the most to making financial decisions. The choices were “financial advisor’’, “spouse”, “parents”, “friends”, “siblings” and “co-workers”. The investors were asked to employ a 0-to-100 scale to indicate the helpfulness of each person or persons.
“Financial advisor” and “spouse” were neck-and-neck in the competition. Among Ultra High Net Worth investors with a net worth between $5 million and $25 million, “financial advisor” edged out “spouse” 65.86 to 64.35. Among Mass Affluent investors with a net worth between $100,000 and $1 million, “spouse’’ topped “financial advisor” 63.49 to 60.42.
It is not surprising investors would listen to their spouse as much as their financial advisor, and in fact, many investors discuss finances with their advisors in the presence of their spouse. Many advisors prefer to have both members of a household present if the investments represent the household interest.
One of the most revealing aspects of the question regarding helpfulness of others is that the Mass Affluent investors are more likely than investors with more wealth to acknowledge the assistance of parents, friends, siblings and co-workers. Parents, for instance, get twice the notice among Mass Affluent investors (27.27) as they do among UHNW investors (13.1). It is true that Mass Affluent investors tend to be younger and might be more likely to still have living parents than UHNW investors.
But the same is true of friends, siblings and co-workers. Wealthier investors are less likely to listen to people other than their spouse or advisor. The Mass Affluent are listening to multiple voices.
Advisors would be wise to determine who their clients are listening to and how effective the advice they get from others is to the investor.
Perhaps, in the next study, Spectrem will ask investors who they blame when investments go wrong. How do you think that will go for advisors?