Clients have different personalities, objectives, and goals. Their methods for making financial decisions vary and so do their communication styles. To some degree, your success depends on your ability to accurately identify a client’s financial personality; adjust your approach to fit; and deftly guide your clients through their blind spots. Easy, right?
Income protection, biases and financial personality
Over the years, you’ve probably wondered why seemingly rational people make irrational decisions about income protection. After all, it is irrational to hope you will “beat the odds” and never suffer an income-interrupting disability. It is also irrational to hope that insufficient financial resources will somehow be sufficient to cover an extended period without income.
Choosing to take the risk of going without income protection is often due to client bias. We all have our biases or financial blind spots. Unfortunately, clients won’t make rational decisions if they have biases standing in the way.
What can astute advisor do? Get familiar with common financial personalities. Vanguard research revealed that advisors who use behavioral insights to guide clients create more value for the client. To help, DNA Behavior, a data analytics firm with a focus on financial advisors, developed a questionnaire that classifies a clients as one of four financial personalities: Goal Setting, Lifestyle, Stability, and Information. Each personality type displays specific behavior and biases – which we’ve briefly summarized below. By using this information, you can coach your clients to make rational decisions.
Goal Setting personality
- Characteristics: Bold and aggressive in financial matters
- Biases: Overly optimistic, risk taker
- Advisor coaching: Present two or three options, but avoid too much detail or you’ll lose them. This personality learns best from a candid discussion of their choices.
- Characteristics: Intuitive, instinctive, trusting
- Biases: Spender, adheres to status quo, follower
- Advisor coaching: The personal relationship with their advisor is very important; allot appointment time for personal conversation about family, hobbies, and life. This personality is conversational and less interested in research and education.
- Characteristics: Timid, desires reassurance about decisions, feelings based
- Biases: Risk averse and loss averse; fear of regret
- Advisor coaching: Be friendly. This personality prefers a comfortable conversation with the advisor. Be prepared to outline your recommendations. Clients in this category will not offer information about what they need. The advisor should to set the agenda and present the recommendations. Be prepared to reinforce the validity of their decision.
- Characteristics: Serious, modest. Researches recommendations
- Biases: Saver, subject to mental accounting bias
- Advisor coaching: This client will read educational materials prior to the appointment and come prepared. This personality may tend toward suspicion; transparency is extremely important.
Of course, this is a very brief overview. Visit the DNA Behavior website if you’d like to delve deeper. Financial personality profiling adds one more tool to your income protection sales toolbox.
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