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In the financial advisory landscape, an important issue has come to light – an overreliance on performance-based metrics, often leading to a generic approach that lacks personal touch. My recent exploration of this topic uncovered a challenge that resonates widely within the profession. Responding to this, financial advisors are being prompted to step beyond the conventional and adopt a more personalized, client-centric approach that goes beyond the pursuit of investment returns. This shift is supported by a multifaceted rationale.
To begin, the pitfalls of anchoring value solely to performance metrics become apparent when considering that advisors might inadvertently tie their expertise to an unpredictable factor – investment returns. In contrast, the true value of financial advice lies in skillfully managing aspects that can be controlled: mitigating risk, optimizing costs, and guiding investor behavior.
Furthermore, research emphasizes the pivotal role of interpersonal dynamics in shaping client outcomes. This spans from providing behavioral support to mitigating investment biases and fostering the articulation of customized financial objectives. Modern investors are looking for more than just transactional advisors; they want professionals who can deeply connect with their individual financial goals. By aspiring to go beyond the confines of a one-size-fits-all approach and genuinely comprehend clients by asking the right questions, financial advisors carve a distinctive niche and establish enduring client loyalty.
Meaningful mindsets: The private investigator
At Seeds Investor, we have implemented assessment tools that enable advisors to sort clients into nine distinct investor mindsets. This segmentation approach not only facilitates the development of customized portfolios but also provides valuable insights that can enhance client engagement. Whereas my last article focused on what I call the “balanced believer,” this piece will explore a mindset described as the “private investigator.”
These individuals are most broadly defined by the following traits and predilections:
- They possess a keen desire to understand the technical intricacies surrounding the portfolio – its composition, construction, and the projected performance relative to underlying benchmarks. They seek the finer details, so to speak.
- They are generally inclined to collaborate with the advisor and offer input regarding the portfolio-construction process.
- They don’t necessarily have interest in applying their personal values to their portfolio (or how their money may empower certain corporate behavior).
- They are likely to be interested in emerging investment trends (i.e., crypto, artificial intelligence (AI), and electric vehicles) because they don’t want to miss out on “the next big thing.”
With an enhanced understanding of the client in front of them, financial advisors have the flexibility to adopt multiple engagement approaches throughout the investing lifecycle. These approaches may include customized portfolio proposals, regular portfolio check-ins, interactive client workshops, proactive communication channels, tailored investment recommendations, and ongoing monitoring and adjustment of investment strategies. By leveraging this knowledge, advisors can provide a holistic and dynamic investing experience that aligns with each client’s unique goals and preferences across key areas:
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Values: When delivering advice to private investigators, don’t make assumptions around how (or even if) they want their values represented in their portfolio. They may not have interest in applying their personal values to their investments or in how their money may empower certain corporate behavior. Even with detailed discussions on value alignment, they might remain indifferent if such topics haven't piqued their interest before. Instead, emphasize how the portfolio is constructed to reach the client’s personal financial objectives.
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Portfolio details: This is the private investigator’s core concern. As I alluded to above, private investigators are keenly interested in understanding the technical details related to their portfolio, how it’s built, and how it will likely perform relative to underlying benchmarks. This means they may want to collaborate with their advisor at the beginning of the relationship on the portfolio-construction process, and perhaps continue to offer input down the road. Additionally, during ongoing portfolio discussions, a private investigator may be interested in how each segment of the portfolio has performed, and why that was the case. In this context, advisors step into the role of educators, elucidating the reasons behind any performance variations. They should be prepared to engage in comprehensive discussions, explaining complex concepts in a way that resonates with the Private Investigator’s analytical mindset.
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Markets and economy: When engaging private investigators, approach market and economic trends in a manner that directly connects to their portfolio’s performance. Address inquiries or delve into subjects they’ve independently explored – a bit of pre-meeting research can be highly effective. Additionally, these individuals appreciate a collaborative approach that provides them with a clear and detailed understanding of how these trends impact their investments and progress toward their desired objectives.
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Emerging trends: Private investigators are often keen on delving into the latest investment trends and themes to identify potential investment opportunities. For instance, a private investigator might be intrigued by trending topics such as artificial intelligence and crypto and could consider making significant adjustments to their portfolio to capitalize on these investment prospects.
To engage advisory clients effectively, personalization reigns supreme. As illustrated through the implementation of tailored approaches for distinct investor mindsets, the power of understanding and catering to individual clients becomes evident. The striking differences between strategies recommended for balanced believers and private investigators emphasize that a one-size-fits-all approach simply doesn’t suffice.
Attempting to fit a private investigator into the mold of say, a balanced believer, or vice versa, risks creating disconnection and undermines the essence of the advisor-client relationship. This reinforces the irrefutable value of bespoke approaches in elevating the investing experience. Neglecting to embrace this philosophy denies advisors the chance to forge lasting connections that resonate on a profound level with clients – connections that make them feel truly seen and understood. In this dynamic environment, the path to success is paved by a commitment to personalization, cementing enduring partnerships that transcend the transactional. I look forward to sharing more insights on a third mindset for the next installment in this series.
Zach Conway is cofounder and CEO at Seeds Investor, a wealthtech platform on a mission to help independent advisors win the hearts and minds of the new generation of investors.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.