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Advisors Creating Lasting Value With Customized Experiences

An article by James Fennessy in the Australian Banking and Finance magazine on March 10, 2011 highlights a key challenge for financial advisors. That is delivering value to their clients and getting paid for it. How do advisors demonstrate the trust in their advice to get paid for it?http://www.dnabehavior.com/AdvisorClient-small-280.jpg The article points out that the cost of a financial plan is around $2500 however consumers only value them at $300. This is a large gap. The other key point that the article does not say is that based on Dalbar studies investors do far worse when they self manage their investments. So, can investors want to have their cake and it too? So, financial planning does need to get to the place where there is trust and value offered. Importantly, if investors want the proper service they will have to pay a fair fee. No different than going to any other professional.

The starting point for this change is with the advisors offering a service that creates greater longer term value and trust. They will need to have deeper conversations that address the clients life and values. The service must go beyond investments as that is a commodity. The advisor must learn to build a customized experience for each client based on the clients unique personality. The client must be recognized and valued for who they are, and not their money. Importantly, the planning process must allow for the client to be guided through it so they are personally involved in every step. Then the value will be felt and even more trust developed. It is now up to the advisors to be trained to do this. Such training is more soft skills related. Research does show this works but advisors have to trust the process. These principles are at the core of the Financial DNA Certified Wealth Mentor Program.

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Click here to learn more about the Financial DNA Certified Wealth Mentor Program.

Advisors Creating Lasting Value With Customized Experiences

An article by James Fennessy in the Australian Banking and Finance magazine on March 10, 2011 highlights a key challenge for financial advisors. That is delivering value to their clients and getting paid for it. How do advisors demonstrate the trust in their advice to get paid for it? The article points out that the cost of a financial plan is around $2500 however consumers only value them at $300. This is a large gap. The other key point that the article does not say is that based on Dalbar studies investors do far worse when they self manage their investments. So, can investors want to have their cake and it too? So, financial planning does need to get to the place where there is trust and value offered. Importantly, if investors want the proper service they will have to pay a fair fee. No different than going to any other professional.

The starting point for this change is with the advisors offering a service that creates greater longer term value and trust. They will need to have deeper conversations that address the clients life and values. The service must go beyond investments as that is a commodity. The advisor must learn to build a customized experience for each client based on the clients unique personality. The client must be recognized and valued for who they are, and not their money. Importantly, the planning process must allow for the client to be guided through it so they are personally involved in every step. Then the value will be felt and even more trust developed. It is now up to the advisors to be trained to do this. Such training is more soft skills related. Research does show this works but advisors have to trust the process. These principles are at the core of the Financial DNA Certified Wealth Mentor Program.

The Skeptical Questioner

This post is part 7 of our 10 part series on Financial Behavioral Insights from our Financial Planning Performance in the New Behavioral Economy White Paper. The financial behavior insights will help you gain greater self-awareness for recognizing some of your own behavioral tendencies and also those of investors.

Behavioral Insight 7: Skeptical Questioner

Peter Madden is 67 years old and recently retired from his chief executive role for a Fortune 1000 company. He has been around financial professionals a long time and always sees them as being out for themselves and not him. Further, he has been watching the market himself now with a Bloomberg screen in the home office. Peter thinks he can outwit the market and get in low and out high. In Peters mind, what do advisors know? Most of them do not have as much money as I do. So, he says, Why should I delegate to an advisor?
Financial Planning insights, financial advisor client, client communication styles, client behavior

Behavioral Insight
Naturally guarded and wary people will be Skeptical Questioners who seek to remain in control of their portfolio but do not easily delegate to advisors.
Communication key: Provide logical explanations and the key points in a straightforward manner.

JPeter is a Skeptical Questioner and better known as a do it yourself investor. Typically, these investors by nature will be very investigative and are independent decision-makers. You will often recognize these investors by the fact that they are very guarded in what they say and yet ask a lot of questions and expect plenty of information. Also, very often the Skeptical Questioners mindset will be that they have the capability to invest better than the professionals. However, the good news is that these investors will take responsibility for the choices that they do make.

The struggle for Skeptical Questioners is learning that they will be the ones who are in the way of their own success. They will be prone to trying to time the market and always believe they can control the outcome. The Skeptical Questioner will not find it easy to delegate to an advisor who can show them how to achieve market returns through a well-diversified portfolio. This will come only after making a lot of mistakes and realizing that they do need help. If, for some reason, they do delegate to an advisor, then watch them take back control when the expected results have not been achieved. Therefore, by trusting no one, then they cannot be really helped, regardless of their knowledge level.

Advisors who are Skeptical Questioners have the natural strength that they will be highly questioning of all information that is provided to them and check all representations made out. However, because they are by nature quite controlling and closed they will find it difficult to build trust with their clients. They will only ever be comfortable when the client completely delegates to them.

Learning Point:

The Skeptical Questioner needs the advisor to play the role of an experienced sounding board that is capable of asking insightful and wise questions to challenge their decisions. The advisor needs to learn they have to wait before being allowed into their inner world. Ask the client: How could you empower your advisors to more effectively help you? In what ways have you got in the way of your own success?

What are your thoughts? For additional information on discovery through behavioral profiles, click here.

 

The Fast-Paced Realist

This post is part 5 of our 10 part series on Financial Behavioral Insights from our Financial Performance in the New Behavioral Economy White Paper. The financial behavior insights will help you gain greater self-awareness for recognizing some of your own behavioral tendencies and also those of investors.

Behavioral Insight 5: The Fast-Paced Realist

Max is a 62-year-old senior corporate executive who is used to making difficult decisions. Some colleagues call him Merciless Max for his ruthlessness about numbers. His view is that forecasts have to be met every quarter and a bottom line number delivered. Predictably, Max believes that the same approach should be adopted with his investments. He looks at the portfolio quarterly and makes the tough decisions that are needed to keep the portfolio in line. He calls this re-balancing. At times, however, his rational focus may mean a short-term swing is mistaken for a long pattern, and therefore too much pruning goes on.Client Behavior, White Paper, Financial Planning Performance

Behavioral Insight
A naturally logical and challenging person will be a Fast Paced Realist who is able to make very rational decisions without getting stuck but may be too impatient for returns.
Communication key: Provide the bottom line results and keep the discussion quick.

Max is your classic Fast-Paced Realist who generally knows when to sell winners and cut his losses. Fast Paced Realists do not have an aversion to taking losses. They are rational enough to see that at times selling losers instead of winners needs to happen even if it is embarrassing or causes short-term pain. They will act decisively and move on without getting too emotional when making hard decisions. Further, unless they have been misled by an advisor, Fast-Paced Realists will generally take responsibility for their decisions and not act like they have been burned because it has all gone wrong.

The struggle for the Fast Paced Realist is that their more aggressive results focused nature can lead them to heavily trading the investment account. Also, their natural lack patience may cause them to sell investments too fast because of a market blip. Therefore, the risk is they may sacrifice what is a good long-term investment for short-term results.

An advisor who is a Fast-Paced Realist has the logical strength of being able to help their client make rational decisions. Although, the struggle will be that whilst providing the rationality they may not recognize the clients feelings about the situation and the decisions to be made. Further, advisors who are Fast?Paced Realists would also be more likely by nature to over trade or churn their clients investments.

Learning Point:

Fast-Paced Realists need an advisor to help them with re-balancing their portfolio on a regular basis to maintain diversification, and in doing so show them the long-term investment fundamentals before short-term decisions get made. Ask the client: How do you approach making difficult investment decisions? What type of performance are you expecting on your investments?

What are your thoughts? For additional information on discovery through behavioral profiles, click here.

 

Framing: Re-frame the Presentation of Ideas and Suitable Solutions

This post is part 2 of our 10 part series on Financial Behavioral Insights from our Financial Performance in the New Behavioral Economy White Paper. The financial behavior insights will help you gain greater self-awareness for recognizing some of your own behavioral tendencies and also those of investors.

Behavioral Insight 2:? Framing

Chris, a financial advisor, has invited 20 clients with similar levels of wealth and age to his office for a lunch and learn presentation by Paul Southwick on a new investment strategy. The new strategy is to provide a mix of dividends and capital growth with some downside protection. Chris has vetted the investment and believes it will fit his clients well. Paul uses a PowerPoint presentation with great content in it about the bottom line of the investment and is an articulate presenter. As he goes through the presentation there are clearly some who get it and want to sign up, there are others who are totally confused by the details and switched off, others who want to do more research and some who need to understand how it meets their security needs. After the lunch Chris is very concerned about the mixed reaction and losing client trust. He knows the product is sound and he will invest personally.

Behavioral Insight
The difference between what the advisor said and what the client heard will be attributable to the behavioral lens of each. The communication of products and solutions must be adapted.

Framing, financial advisor, customizing the message, customized experience, client engagementHave you ever attended a presentation like the one Chris arranged and been de-energized, bamboozled and confused by the investment proposal and not responded? Understanding investors learning styles and propensities for receiving information, new ideas, strategies, products and solutions is critical to successfully presenting to them. This will increase the chance that they understand the proposal for what it is and how it is relevant to them.? The mistake many advisors and fund managers make is that they naturally present to investors through their own lens. Instead, they should be re-framing how they present to be much more on the investors unique terms.

Advisors need to appreciate that with 20 people in the room there could be 20 different reactions, because each person is unique. The best way to get around this is to re-structure the proposal being presented into 4 quadrants so that each broad category of behavioral needs is addressed: 1. The big picture and how it relates to achieving goals and bottom-line returns, 2. Indicate how their lifestyle needs are met along with telling them the names of the people involved in managing the product or solution, 3. Address financial security and provide feelings, 4. Make the solution tangible and provide the history and research details.

Learning Point:
Advisors need to use behavioral insights to customize their communication with clients and to re-frame the presentation of ideas and suitable solutions so the client interprets the information as intended.

What are your thoughts? For additional information on discovery through behavioral profiles, click here.

Advisors Can Differentiate By Integrating Behavioral Finance Strategies

Recently, Merrill Lynch and Capgemini have issued a very important research study which demonstrates how much investors confidence has been eroded by the turbulent markets. Investors are still very wary of the future.? Click Here to read the article.
The article points out that the following:

  1. Investors want a more active relationship with their advisors, including a deeper understanding of their investments and how they are aligned to their goals, based on their actual risk profile.
  2. Many investors are being driven by their emotions when making investment decisions which is increasing the need for advisors to engage in greater dialogue with their clients.
  3. Clients are now demanding fundamental changes in how they are served, and are favoring firms which can understand both their emotional and intellectual needs. This is increasing the need for advisors to incorporate a behavioral finance approach towards portfolio management. Advisors need to be able to incorporate the emotional factors into stronger portfolio management and risk management capabilities. A behavioral finance approach of this nature can be a big differentiator among firms.

This research is very consistent with other research, such as from Gallup, which demonstrates the need to emotionally engage with clients at a much deeper level. This is the new “behavioral economy”.

Resistance to Financial Planning

Last week, there was a Financial Planning Association group discussion in which someone posed the question: Why do people resist creating a formal financial plan.

This is a great question and gets to the core of financial planning.

Many people do not know what financial planning is. I think many financial planners are still learning what it means to them. As the industry grows and comes to more of a collective view then this will help. Is the planner about achieving returns or helping a client achieve life and consequently financial goals? What role is the planner playing in the client’s life?

Those who accept the planner as their financial life guide will more likely do a financial plan. Another key point is the person’s level of personal trust. Do they have fears about planning and sharing themselves and getting help? Do they trust the planner? Both issues are at work.

I also find that if the planner is not a trusting person (and our research shows 70% are not) then this is not conducive to building relationships and getting planning commitment. The question of trust gets down to both a person’s DNA behaviors and their life experience. The more the planner represents product and is not independent then trust will also be harder to build.

Ultimately, the more a planner seeks to know their client and make the client feel they are understood then the chances of getting the plan done increases. Further, retention will increase. The client is not a financial number but a person whose life constantly develops.