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Hugh Massie Presents at Genworth: Navigating Financial Personality Risks

How are you navigating the different behavioral styles and emotions of your clients?

In this inspiring presentation, Hugh Massie shares compelling research and behavioral finance insights to illustrate how discovering your clients’ financial personality (i.e. their Financial DNA) will help them to manage the investment, financial and relationship risks that have a significant impact on their financial planning.

Financial Planning ‘in the Life Gap’

Three thoughts that could change the way your customers view risk.

When it comes to wealth management planning with clients their response might come from:

  1. The life they are living
  2. The unlived life they could be living
  3. The Life Gap in between these two.

I wonder how much potential your customers have that lies unrealized in the Life GapTM? Life Planning in the Gap, financial planning risks, financial risk behavior

  • A new business venture
  • A more radical approach to the way they currently conduct their business
  • A long laid down dream that needs finance to ignite
  • A chance to build a dream house
  • Finances to go to/return to University
  • Become a philanthropist

As an advisor, consider this thought:? what keeps intelligent, energetic, vibrant individuals from achieving their wealth building and wealth management objectives?

Some key thoughts to consider are emotional, behavioral and communication factors.

Lets look at some obstacles to building wealth that can inhibit people from taking action to achieve their financial independence and to encourage their decision making to be from knowing whats in their Life Gap and leveraging it to move them to the life they could be living.

  • Fear of not making good decisions ? how well do you know your clients? Have you any insight into what might lay dormant in their Life Gap?
  • Fear of making a bad investment – what happens if something goes wrong? Do you know their preferred communication style? How could knowing this assist you in uncovering historical information and experiences to help improve the advisory process?
  • Procrastination – when it comes to finances, they need to take an honest look at themselves and their habits to figure out what they are doing that prevents them from succeeding and realizing whats in their Gap. Do you know how to uncover such information?

In a highly competitive industry, as is the financial planning industry, success may well come from having an edge over competitors. Being able to reveal the position from which clients make their financial decisions and knowing the natural risk taking behavior is foundational because it is inherently stable over long periods of time and therefore predictable through different market events. The natural hard wired behavior will always instinctively reveal itself and take over when a person is under financial and emotional pressure. Therefore, such behavior strongly influences their decision-making. This is when they are likely to make decisions from the life they are living and close down the personal skills, opportunities, what ifs which remain unrealized in their Life Gap.

Visit the Financial DNA website and learn how to discover your clients’ risk taking behaviors in order to help them achieve their wealth building and wealth management objectives.

Know Your Client’s Trust Levels

Last week I was working with one of our Certified Wealth Mentors with my role to offer some behavioral insights on some difficult client cases. The cases were difficult because of the clients attitudes not only to financial decision-making but also to life. These cases reaffirmed to me how much trust is core to all dimensions of every client situation. This is why when we redeveloped our DNA personality system in the past year we made trust a new stand-alone personality factor.

Often when we talk about trust it is in the context of our role as trusted advisor and building open relationships with clients. Certainly, this is an important dimension. Talking about trust in this way is fine. However, the heart of truly understanding trust and to knowing our clients is to know where trust comes from. There are a number of very important dimensions to trust that we all need to know. Let me ask you the question: How much do you trust yourself? Trusting yourself is the starting point of building sound relationships and also making sound decisions. Your own level of personal trust will determine whether you will trust others and then whether others will trust you. So, if you want to know whether your clients will trust you, reflect on your own level of self trust and then learn about their self trust.

We all have a natural level of trust which comes with our natural DNA behavioral style and then there are life experiences added on top which deepen or reduce our trust levels. The more we know who we are and have personal confidence then the more likelihood that we will trust.

In one of the client cases I was referring to the client was 60 years old with a very successful business and over $10 million to his name and annual income of over $2 million. However, he was personally unhappy, not prepared to let go of the iron grip on his business or prepared to create an estate plan his family could know about or be involved in. Does this sound familiar? This is a client who has very low personal trust levels and it transcends every part of his life. It will be very hard for this advisor to get close and really provide the advice he needs and on the other side the advisor will find it hard to meet expectations. A no win situation.

Have you seen people make fear based decisions and not be transparent? This starts from low personal trust levels. As a service provider you want to know your clients trust levels early if you are going to have a close and profitable relationship. You will never be able to help this type of person until you can discover the source of the fear. The difficulty is getting them to tell you. I do find that when you can get a client to talk about their strengths and passions you have a much greater chance of unlocking the fear, and trust grows from there.

Transform Your Client Experience to Grow

For advisors, growing your financial planning business is about getting more of the right clients who you can profitably serve on a sustained basis. This means you must have financial planning clients who will pay for the value you provide and will allow you to do so efficiently and with minimum wasted energy. I am sure this sounds logical and for many financial advisors this will sound obvious. The question is: are you acquiring clients and managing relationships as well as you can?

Creating the right client acquisition plan does not just happen and normally you need to have been in business at least 5 years to be in a place to work out is right. Experience is needed. One starting place to getting the right plan in place will be performing a financial analysis of your business to determine the profitability of your client relationships. In my experience, it will not always be your highest fee paying clients who are the best clients to have.

However, I would seriously recommend in building your client acquisition plan that you consider the client experience being provided. Remember, we are in an experience economy. Transforming the client experience you wish to provide is the key to growing your business and also your revenue. This is where the perceived value will come from. The starting point for this transformation process is with YOU personally understanding who you are, your Financial DNA personality and your life purpose. Consider:

  • What are your talents and unique gifts?
  • What are you passionate about?
  • What are your own life and financial motivations?
  • Where could you make the most difference in the life of your clients?
  • How do you wish your service to be remembered?
  • How will you differentiate your service?
  • What capabilities do you have to develop?
  • What processes do you have to build?
  • What will the profile of the desired clients be?

THEN, address what fees you need to charge to profitably deliver this service experience, and the fee charging model. From this platform you can determine your client selection policy and the ideal practice for you.

For you to be successful in creating an experience your service must create feelings. The client must feel that who they are is understood along with their life. Further, your clients must feel that they are making the right life, financial and investment choices. So, your client service experience must have a greater “inside out” feeling and hence methodology to it. This is not just connecting with the client on an inside-out basis up-front to build the plan. The inside-out experience must be continually provided every year through the review meetings and in every communication. You will only achieve this by creating a service model that is authentically connected to the core of who you are and also the core of who your clients are.

Fundamental to the approach I have been using for the last 10 years is to have all of my clients complete a Financial DNA personality test up-front in the planning process. This creates the feeling of being understood. The feelings of understanding and trust are accelerated when the client sees my own Financial DNA personality profile. This now makes us more equal and shows I have walked the journey too. From here, I build the whole planning experience tailored to who the client is so that they can make the right choices.

To learn more about Financial DNA and building the “Ideal DNA Advisory Practice” visit: www.financialdna.com/advisor

Investment Risks Rooted In Human Behavior

A statement I have been making to many people for the last 10 years is: “Investment markets cannot be controlled, but how you manage your reaction to them can be”.

Generally, for most investors the reason that they obtain returns which are on average 6% lower than market returns is because of their behavior. Investors generally make poor investment decisions because of their reactions to events and also to their own life circumstances. This can be because they do not know who they are or how to manage their emotional impulses which are driven from how they are wired to behave. I really want to emphasize that successful investing is about managing your behavior.

If you are an advisor, it is about predicting and managing your client’s behavior and also managing your own behavior. So when you talk about managing investment risk, what you are really talking about is managing BOTH human behavior and the market risks. This is fundamental to the value proposition for obtaining advice from an advisor. Clearly, it is important that the advisor also has a high degree of financial emotional intelligence.

Traditionally, when risk is talked about in investing, everyone talks about market risks and to some degree investor risk tolerance. The reality is that there are so many more risks which need to be addressed which all have an impact on the investment decisions made. These additional risks are behavioral. To make the point, I have prepared the following table which highlights many of the “Investment Impact Risks” that can influence investment decisions and ultimately the investment returns a person achieves. This is what needs to be managed.

Click Here for the illustration.

So, there is a very strong case for every person to have behavioral guidance from an advisor no matter how knowledgeable or experienced they are with investments. The behavioral guide or what we call a “wealth mentor” needs to have a true understanding of a person’s Financial DNA which is their financial behavioral style. The Financial DNA is shaped from genetics, early life experiences and then overall life experiences, values and education. At a broad level, the behavioral information that needs to be discovered is in the following categories of information, as they all impact the investment decisions made in some way.

The reason we advocate that investors and advisors (the behavioral guide) complete behavioral profiles early in the advisory process is because they provide objective and measurable insights into the complete financial behavioral style on a holistic basis. With a good behavioral profile, not only is the risk tolerance discovered, but also completely who the person is at a much deeper level than what any normal person can reliably do on their own. You truly get below the surface. Remember, no matter how evolved you are personally, we all have blind spots and biases. Very often clients “eat” the behavior of the advisor. So, the advisory process becomes dangerous if the advisor is not aware of his or her blind spots.

Which ever angle you come from they all lead to the point that investment risks are rooted in human behavior.