IFAs need to wear multiple hats when it comes to advising clients. With all the stresses and strains finances can bring; at times, advisers must feel they are part priest, part therapist.
Their explicit purpose is to give advice, guidance, recommendations etc.
But research from Nedgroup Investments found that removing the barriers of personal biases, such as advisers projecting their own personalities on to investors, further supports improved outcomes.
Which is an interesting thought.
Do risk-averse financial advisers subconsciously encourage their clients to stay away from more risky strategies, and vice versa?
Personality projection
Nedbank’s Investor Personality and Behavioural Report 2021 was conducted in South Africa and looked at more than 3,000 direct investors, advised investors and financial advisers.
It highlighted how presenting information to, and communicating with, investors based on personality traits can deliver optimal levels of engagement.
The survey identified six investor groups:
- Sensitive – needing the most guidance.
- Skittish – worried about unforeseen spending.
- Stressed – financially precarious.
- Secluded – self-sufficient.
- Settled – not particularly emotional or interested, financially comfortable.
- Secure – confident and composed but sill interested in receiving guidance.
The Sensitive, Skittish and Stressed investors were found to have ‘low composure’, which increased the desire for guidance.
The report stated: “For those who work directly with individual investors, like advisers, it is important to be aware that people who seek advice are often very different to those who give it.
“This is particularly relevant when it comes to the way that different investors will receive and interpret market noise, information and communication.
“Considering the range of archetypes can help advisers combat inconsistencies based on projecting their own personalities onto their clients.”
Easier said than done
Financial advisers are products of experience. Their views, idiosyncrasies and opinions have been shaped, tested and reformed during their careers.
That is the basis of their expertise. That is what clients pay for.
So, does it really make sense for them to strive to remove their ‘biases’ from the advice they give?
‘Low composure’ investors have a stronger desire for guidance, especially the Sensitive group, suggesting they consider their own views and knowledge insufficient – hence their seeking out and paying for expertise.
Equally, a confident adviser could make a nervous investor more comfortable. A cautious adviser could make an overly confident client rein in their expectations.
It’s also interesting that the Nedgroup report referred to ‘improved outcomes’ but did not specify what this equated to.
The right fit
It is important to establish, early on, the compatibility between adviser and client.
Like any professional service, it is important that both sides are comfortable and confident in the relationship.
Whereas a churchgoer might not have many alternatives when it comes to who their local priest is; they can shop around to find the best therapist for them.
With the emphasis on ‘for them’.
Just because your best friend thinks their therapist is amazing does not mean they will be for you.
And it’s the same with advisers.
Let me know your thoughts in the comments section below. Are adviser ‘biases’ detrimental to clients or are they just the product of experience?
