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The Affluentialist: Reading Your Clients

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Last month we looked at a recent study that examined how advisors’ regular relationship with clients is not devoted to just pure financial matters. Advisors and clients end up discussing such serious emotional issues as divorce, health, death, depression, children’s behavioral problems, career fears, religious/spiritual questions, and even addictions. If a client asks you for marriage advice when he’s thinking about leaving his wife and kids for a much younger woman, you know the answer never appeared on a Series 7 exam or in any of the CFP course work.

Not surprisingly, the emotional complexity of the relationship increases as the assets increase, according to Lyle Sussman, PhD, chairman of the department of management and entrepreneurship at the University of Louisville. To make the matter more challenging, the study showed that less than 40% of financial planners had any training to manage such matters. “You have to think up front how you are going to deal with these client problems, because you are going to face them,” notes co-researcher David Dubofsky, PhD, CFA, a professor of finance and associate dean for research at the same university.

Advisors have a distinct advantage if they display Emotional Intelligence (EI), which includes self-awareness, self-discipline, and empathy, among other factors. Dr. Daniel Goleman, who popularized the concept in the mid-’90s, says that emotional intelligence helps explain why individuals of modest IQ can excel in their careers while those of superior intelligence may flounder. The effective application of EI focuses as much on knowing when and how to express emotion as it does controlling it. Empathy, an especially important component of emotional intelligence, contributes to career success, for example. Researchers found that people who were best at indentifying others’ emotions were more successful in their careers and personal lives.

Besides playing a role in one-to-one interactions, emotional intelligence also steers the working of groups, such as advanced planning teams where precise and complex communication is required for team success. Although any advisor will have his personal anecdotal experiences to call upon, experiments have shown that the emotions projected by the leader of a group greatly infect members. Positive feelings lead to improved cooperation and overall performance. Negative emotions in the leader hinder or prevent them.

Basic emotional competency skills, which are linked to and based on EI, can have a profound effect on client relations. An Ameriprise Financial study of advisors identified the emotional competencies in advisors that help them guide clients to make the right decisions about investments resulting in better returns. Such soft skills didn’t make the advisors better investment managers, but they did provide them with the ability to better influence clients to reach better outcomes.

“A key differentiator between financial advisors who help their client achieve positive returns and those who help their clients achieve superior returns is moral and emotional competency,” stated the authors of “Morally and Emotionally Competent Financial Advisors Deliver Superior Client Service and Portfolio Performance,” conducted by the Lennick Aberman Group.

Higher emotional competencies also lead to better client service. Six competencies proved to have the most impact on portfolio results. They also happened to be the center of high performing advanced planning advisors and are outlined on the following page.

Demonstrates Integrity

You provide direct, consistent, and honest communication with clients, even when dealing with sensitive and/or difficult topics.

Sample Situation: A client insists on changing the asset allocation in his retirement portfolio, although you warn him about the long term negative impact of such a change. The client is unconvinced, so you suggest that he seek advice from another investment expert. You demonstrate integrity by willing to give up the client rather than proceed in a way that you know is too risky.

Client Service Orientation

You focus on the client’s point-of-view and are attentive to the tactical aspects of the efficient delivery of services.

Sample Situation: After an initial meeting, it’s clear to you that a couple needs to revise their current estate plan. You provide attorney referrals and participate in all meetings with the one selected, plus all discussion with the accountant and other experts required to create and then implement the plan.

Concern for Quality and Order

You drive to reduce uncertainty in what you present to clients and to clarify the planning processes, roles, and plans.

Sample Situation: You use a regular process for monitoring portfolio performance and communicate with clients at regular intervals through the year. When a client calls with a question, you and your staff have easy access to all of the relevant data with efficient computer and paper files, which are updated regularly.

Teamwork & Collaboration

You work cooperatively and productively with others as a team member and not competitively or in isolation.

Sample Situation: By sharing insights and information with other advanced planning team professionals, you partner effectively to best serve the clients’ interests.

Self Confidence

You believe in your abilities to accomplish tasks, including challenging circumstances, and believe in the soundness of your decisions and opinions.

Sample Situation: Rather than go along with a client’s irrational and inconsistent ideas about investing, you constructively challenges them.

Achievement Orientation

You act in ways to meet or surpass goals of high personal performance, coupled with prudent risk taking.

Sample Situation: You continually streamline your discovery meetings to gather more complete client details in less time.

While advanced planning professionals and other financial professional with high-net-worth clients manage their practices and relationships to model themselves as trusted advisors and not salespeople, it’s still worthwhile to look at research on the sales process. In many ways, the simpler transactional relationship provides a purer setting to measure similar quantitative results than the more complex planning and analysis conversations that go on with an advanced planning group.

During the 1990s, American Express Financial Advisors developed an Emotional Competence training program to enhance emotional self-awareness, self-control, empathy, communication, and conflict management which became standard training for both new advisors and managers.

The programs proved effective. In one evaluation, a group of 33 advisors received training and then took a standardized test that measured optimism and coping skills required for successful life insurance sales. The group that attended emotional competency classes improved their scores by 13.5%, while the control group only gained by 0.9%. Those trained also improved their total sales revenue by 10% and life insurance sales revenue by 20% over the controls, as stated in a report to the Consortium for Research on Emotional Intelligence in Organizations, which is co-chaired by Goleman.

In another evaluation of the impact of high EI at a life insurance company, sales agents who scored very strong in at least 5 out of 8 key emotional competencies sold policies with an average premium of $114,000 vs. $54,000 for those scored low, according to findings by Hay/McBer Research and Innovation Group.

Personal Emotional Boost

In another test with a group of American Express Advisors, gross dealer concessions increased an average of 18% for the year September 2001 to August 2002, compared to 11% for all advisors in its market unit. During the better market year of December, 2003 to November, 2004, gross dealer concessions for another test group increased 46% compared to 13% for the unit as a whole, as reported by Frederic Luskin, et al, in The Training of Emotional Competence in Financial Services Advisors, Consortium for Research on Emotional Intelligence in Organizations.

Just as importantly, these advisors and those in two other groups showed significant improvement in life satisfaction measurements and reduction in stress.

A related combination of a boost in productivity and a jump in quality of life factors would have a profound impact on any single advanced planning advisor or group, especially over many years.

The close personal engagement that advisors have with their clients has a direct impact on the advisor’s life and practice. As one advisor told researchers Dubofsky and Sussman, “We get closer to our clients, and they open up to us with the good, the bad, and the personal. It’s in large part a relationship business. I go to weddings, (was best man last December for a client), funerals, college graduations, make hospital visits and on occasion have shoveled snow, raked leaves, moved boxes to storage, etc., and simply cried with clients. Planning is all about life, and being a small part of the fabric of all that happens to each of us. It’s not all about money, that’s simply part of the tapestry of life, and we can be a common thread by choice.”