Financial decisions are rarely based purely on "reason." Deciding when and how much to invest, and who to trust, involves emotion, past experiences, biases, and any number of unspoken assumptions. This is the essence of Behavioral Finance.
FlexShares’ recent study, The New Rules of Growing Wallet, examines the influence of Behavioral Finance dynamics on high-net-worth investors’ advisor allocation decisions. One of the architects of this study, Barnaby Riedel of RDCL, an independent market research and communications consultancy dedicated exclusively to the financial services industry, talked with The Flexible Advisor about the research and what advisors can gain from the results.
It sounds simple enough: If you can earn a client's trust, you can increase wallet share. This may explain why research on the topic has tended to focus on advisors’ behavior. That makes sense, but for one faulty assumption: that one tactic can succeed with all clients.
The FlexShares study looked at how investors, not advisors, come to the wallet share discussion. “We chose to take what anthropologists call the ‘inside view’ or ‘the native point of view’,” said Riedel. “Do clients come with an idea already in mind? What are they thinking in terms of ‘what portion of my pie do I want to give to any one advisor versus another?’”
The study was structured in two phases: In Phase 1 participants were invited to tell their money stories, what informs their personal views and approach to investing. “In those discussions, we quickly recognized five ‘personas’ of wallet share,” said Riedel. “Trust is important to all of them, but how it's built is dependent upon understanding their unique emotions.” In Phase 2, participants were quick to identify themselves among the five personas, confirming that different clients have distinct hurdles when it comes to establishing trust with an advisor. As Riedel said, “When advisors can build trust based on what different personas are looking for, they build deeper relationships and drive greater satisfaction. It's a win-win when trust can be built with an understanding of these nuances. It should benefit both advisors and investors alike.”