Political divisiveness is rampant, according to the media (whether it is mainstream, fake news, digital or other). But should it be part of a discussion about investments? And does one’s political affiliation impact their attitudes regarding their finances?
Yes and no. Spectrem’s new report, Politics, Taxes and Investors’ Changing Attitudes, focuses on how investors feel about the new tax reform act, the political environment, their individual financial concerns and whether they feel national policies will impact them personally. The report also found that understanding an investor’s political leanings can identify financial concerns and related behaviors than an advisor should discuss with their clients.
Why should politics be involved in any client discussion? Because investors care more about politics today than they did in the past, according to the report mentioned above. More than half of investors (52%) indicated they are more interested in politics than in the past. Why? Forty seven percent of investors indicated they are more interested in politics than in the past because they want to see if President Trump and Congress can work together to make changes. In contrast, 28% are interested because they support the administration and want to see it succeed while 29% despise the current administration and want to see it fail.
When investors were asked if they knew the political affiliation of their financial advisor 9% indicated that their advisor had the same political affiliation as their own while 19% said they suspected it was the same as their own. Two percent of investors indicated that their advisor’s political affiliation is different than their own while 8% suspect that it is different than their own. The largest percentage of investors (62%) has no idea what the political affiliation of their advisor may be and most don’t really care. Investors were asked to rate if they cared about their advisor’s political affiliation on a scale of 0-100 with 100 meaning they cared a lot and 0 meaning they don’t care. The overall rating was a 28.3, indicating that only slightly more than a quarter seem to care about their advisor’s politics.
That is an appropriate outcome! You don’t want your clients to know your political affiliation because it may make them uncomfortable. You also don’t want to ask them about their political leanings. But asking a few questions can assist you in trying to understand issues that they may be concerned about due to their political leanings.
What are some of those issues?
- Not surprisingly, those investors who describe themselves as Democrats are much more concerned about the economy than those who are Independents or Republicans. They are also more worried about market volatility and more likely to anticipate the bull market to end shortly.
- A large percentage of investors are uncertain about how the new tax reform legislation will impact their own financial situation. Almost half (47%) will be reaching out to their financial advisor (as well as their accountant) for advice. Investors who have an IT Professional or Educator in the family (or are in that profession themselves) are more likely to be seeking help from their financial advisor. These professions also are more likely to identify as Democrats. Note, however, that 28% of investors have no idea how the tax laws will impact them.
- Half of investors are worried about Climate change/Global warming. Eighty six percent of Democrats are worried about Climate change/Global warming compared to 26% of Republicans and 56% of Independents. Those with greater concern over climate issues may be more interested in socially responsible investments.
- Democrats are more concerned about outliving their assets than Republicans and Independents.
- Republicans and Independents claim to be more knowledgeable about investments and more likely to want to be involved with their investments than Democrats.
As you can see, some of the differences described above can influence the way you interact with your clients. If you anticipate they lean towards more liberal issues, focus on retirement income and socially responsible issues. Take an educational approach to your discussion. If you think they are more conservative, presume they feel they know a lot about investments and focus on results.
In the end, the research shows that the way investors allocate their portfolios does not vary based upon their political affiliation. This is due to two factors. First, in the end maybe investors really all have the same goals and objectives. Second, financial advisors have done a great job of influencing investors to make the right decisions despite their often-emotional feelings about specific topics.
© 2018 Spectrem Group