Many years ago, in a Congressional hearing related to terrorist concerns, former Secretary of Defense Donald Rumsfeld said “We know what we know and we don’t know what we don’t know.”
There’s a statement you can’t argue against.
Considering Rumsfeld’s comment, the goal of financial advisors is to reduce the amount of information they do not know about investors, both individually and as a group.
When advisors deal with their clients, they are encouraged to find out everything they can about their investor, from their financial background to their plans for the future. Every bit of information can provide a glimpse into the best way to approach investment decisions and philosophies.
That’s how advisors should handle individual investors, by getting to know them backward and forward. But advisors and financial providers also need to know how to approach prospective clients, and that knowledge can help attract new clients while maintaining hold on the clients a firm currently has in place.
Understanding the investment decisions of today’s community of affluent investors is the point of Spectrem’s latest study, Asset Allocations, Portfolios and Primary Providers. The study of investors, who ranges from those with a net worth of $100,000 not including primary residence to those with a net worth of $25 million, determines what products are most popular with investors today and what products investors are looking for in the coming months.
Assets, product ownership, household expenditures, future investment intentions – these are all topics covered in the report and advisors can use this information to get a tenacious grip on the understanding of investors from different wealth segments, different age groups and different occupational backgrounds.
This information matters to advisors, because they need to know what products are preferred by investors and which ones are less popular than others. It’s almost like an instruction book to explain the current proclivities of investors.
This information is of greater significance today due to the changes anticipated in governmental decision-making. President-Elect Donald Trump, the most successful businessman ever to serve as President of the United States, is expected to make decisions which are beneficial to the business world. Even before his inauguration, Trump’s election has affected the stock market and his decisions have influenced investment decisions.
At the same time, the Federal Reserve is expected to react to the continued improvement of the U.S. economy by raising interest rates. Although each rise will be incremental, reports are that as many as three increases could come in 2017, and that will create a new atmosphere of investing that has not been present in the United States since the recession almost a decade ago.
Spectrem has been conducting its study of investor portfolios for many years, but this year the study added a wrinkle, asking about the investor’s philosophy toward investing. Directly, investors were asked whether they invest for growth (to get more money), income (to have a monthly income in retirement) or security (to have enough money to live comfortably both today and in the future).
This is another example of the kind of information advisors need to have regarding their clients. An understanding of the philosophical push and pull in an investor’s mind can determine the direction future investments should take. If interest rates do climb and the potential for greater growth does come to fruition, advisors will need to know how to point their investors towards products that will have a greater chance of providing the growth, income or security the investor desires.
Gathering knowledge takes time, and it also requires knowing what questions to ask. Financial advisors have to deal with numerous clients daily, and it is very difficult to maintain up-to-date information on an individual investor’s situation.
But every tidbit of information that is collected creates a smoother path to investor satisfaction, and advisors will know what they know, which is that their clients are being provided the best information possible to have a successful investment strategy.