Are You Getting Clients' Goals Wrong?

Clients’ perspectives, rather than advisors’, should anchor the relationship between the two.

This Practice Management article is intended for financial advisors only (registered representatives of broker/dealers or associated persons of Registered Investment Advisors).
 

Having a hard time helping clients identify their goals? Maybe it’s time to look at matters from a different point of view.

Using insights derived from behavioral finance, advisors can see matters through a client's eyes, and thereby more quickly identify what's important to them and what solutions might be available, says Michael Liersch, director of behavioral finance at Merrill Lynch, who presented at the recent Investment Management Consultants Association [IMCA] Annual Conference in Las Vegas.

"Our perspective as advisors shouldn't be our anchor point. Our clients' perspective should be the anchor," Liersch says.

Liersch says many clients simply don't know or haven't articulated what they want to use their money for. And because they don't know that answer, clients also don't really know how far along they are to meeting those goals.

Advisors need to develop methods to help clients express what their true goals are. For example, Merrill has developed an investment personality test to help clients and advisors figure that out, Liersch says.

"I'm not talking about a risk tolerance questionnaire," Liersch explains. "I'm talking about an emotional questionnaire. ‘Do you feel good about the future?’ ‘How engaged do you want to be in the investment process?’ ‘What's the value of an advisor to you?’ That's the approach."

Advisors should beware of jumping for their toolkit before learning the ins and outs of their client's perspective on life and wealth, Liersch warns. The reason? You don't truly know what's the best tool to solve a problem until it's fully understood.

Liersch had the audience play a game he regularly has clients' families do. Imagine, he says, that you're on a plane that crashes into the desert. You've all come out fine, but the plane is on fire. There are 15 items on the plane (ranging from bottled water to mirrors to vodka), and you can only save three. Liersch asked the audience members to write down their top three, and then share why they chose them.

While everyone picked the water, the rest of their choices were mixed. One advisor opted for the mirror in order to (hopefully) flag down a rescue plane, while another preferred a compass to find their way home. Liersch's point: Everyone had the same ultimate goal—survival—but entirely different perspectives on how to get there.

Likewise, there is incredible and unforeseen complexity, Liersch says, in a simple question about what you want to do with your money.

"We can't go directly to the investment solutions without understanding the primary, underlying goals," he says. "And we need to revisit them because what you see as someone else's bias and irrationality might be entirely rational based on their goals and aspirations. So, it's critical to reframe those goals for the client."

These insights are particularly important for advisors working with couples, Liersch says. A husband and wife may say they have the same goals, but see entirely different avenues for getting there.

A shift in perspective can enable advisors to better identify a client's true goal, and thereby also bring into focus the best tools for getting there, Liersch says.

—Andrew Welsch