Financial Planning > Behavioral Finance

3 Client Engagement Styles Advisors Need to Understand

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“To be an effective wealth advisor today, you must not only be a knowledgeable wealth management and investment planning expert, but also a sensitive, self-aware and discerning observer of human nature, behaviors and motivations. By understanding all these factors, you’ll be able to serve your clients in ways that your colleagues cannot[, for] you will bring the hugely important component of emotions and behavior to bear, not only to better understand your clients and what makes them tick, but to work with them in a way that is aligned with their emotional nature and temperament.” —Chris White, “Working with the Emotional Investor: Financial Psychology for Wealth Managers” (Praeger Press, 2016)

Facing margin compression due to increased overhead, fee compression due to low-cost robo-advisory platforms and increased competition for clients from breakaway brokers, independent advisors today are looking for ways to differentiate themselves. Some are adding client services, while others are doubling down on marketing and messaging. Chris White, a senior investment counselor at Hemenway Trust Co. in Salem, New Hampshire, with over 25 years of experience working with individuals, couples, families and institutions, offers a different approach: applying widely accepted psychological and behavioral principles to client relationships.

Now, before your eyes glaze over, I should point out that this isn’t one of those pop psychology books: It’s a serious work written by a well-respected veteran financial advisor and student of psychology who has spent his career trying to understand what drives the behavior of his clients. This becomes abundantly clear in his first chapter, “Understanding a Person’s Emotional Template,” in which he offers in-depth references from a who’s-who list of financial psychologists and behavioral economists, including “The Intelligent Investor” by Benjamin Graham; “Prospect Theory: An Analysis of Decision Under Risk” by Amos Tversky and Daniel Kahneman (who won the 2002 Nobel Prize in Economics for his work); Jason Zweig’s “Your Money and Your Brain”; Richard Davidson’s “The Emotional Life of Your Brain”; and the work of psychologist David Kantor, “Understanding What Contributes to an Individual’s Emotional Template,” which is the foundation for much of White’s book. For those who aren’t familiar with the cutting-edge research in these areas, White’s list and accompanying commentary alone is worth the price of the book.

Like much of psychological theory, and the basis of this book, Kantor’s model of group and interpersonal dynamics “derives from the formative childhood stories we all experience as we are growing up […]. Our childhood stories become the foundation for all that we then become, and they reverberate with implications throughout our lives, reflected in how we appear to others in the world, how we communicate with others, behave in the face of adversity and challenges, make decisions and in the conversational ‘stances’ we take in conversation and group situations with others.”

In short, this means that much of how we act and think is determined by things that happened to us in our early past, and there really isn’t much we — or anyone else — can do about that. According to White, for financial advisors this means two things: Their clients are the way they are and that isn’t going to change; and when advisors understand the way their clients are, and the way they themselves are, they have a much greater chance of creating a happy, productive and satisfying relationship for both parties.

3 Engagement Styles

The good news is that there are only three basic “Client Engagement Styles” for advisors to understand and learn to work with. White puts it this way:

“An individual’s preferred style of social engagement is formed early in childhood, impacted profoundly by a person’s relationships with parents, family, teachers, religious figures, other authority figures, siblings and peers. It’s important for the advisor to remain non-judgmental about this: The styles simply offer a predictive model for how an individual is likely to present themselves in conversation with you.”

He recommended advisors build rapport with clients by “meeting them where they are, understanding their preferred style of social engagement” and adjusting the way they engage accordingly.

Here are the three engagement styles White identified:

Open. These clients “typically put a high value on back-and-forth interaction and discussion. They make decisions about things by gathering, discussing and vetting ideas from different sources, weighing options and arriving at decisions through careful deliberation and reflection,” White wrote. “As you work together to define investment goals and implement wealth management plans, such individuals display great openness to new ideas.”

Closed. “People who prefer a closed style of engagement are less focused on process and inputs, and more focused on efficiency, planning, results and the bottom line,” according to White. He noted that clients who prefer “this transaction style can be very black and white when it comes to considering options,” and tend to be “data driven, closure-oriented, like to ‘cut to the chase,’” and are often time sensitive. White wrote that “these clients often like to drive conversations, and place more importance on completing talks and identifying and reaching objectives than on the actual process used to make decisions.”

Random. “These individuals value creativity, individuality and spontaneity of expression. In contrast to others, they can come across as having all the time in the world. To the untrained eye, Randoms can appear unfocused, disorganized or distracted when talking with you. They may have trouble making decisions given multiple possibilities and choices, and you may be challenged in bringing conversations with them to a close for the purpose of deciding on a definitive course of action. As an advisor, you need to bring structure and organization to your discussions with Randoms to facilitate individual, joint or collaborative decision-making.”

White wrote that identifying clients’ engagement style will provide advisors “with clues about how to adjust your style to work with them in the most effective way.” The early stages of a relationship are when “roles are defined, trust and rapport are created, and norms of communication and behavior are established,” he wrote. “Be mindful of all these dynamics as you begin new relationships with clients, because the relationship-building process should not be rushed. Indeed, you owe it to yourself, to your client, and to the professional relationship the two of you are building to establish that relationship based on mutual respect and strong professional and ethical understanding.”

White suggests that the most successful financial advisors take their understanding of engagement styles one step further: Becoming fluent in all three communication styles.

“As an advisor, I have found that the more I’m able to operate using all three engagement styles, as situationally appropriate, the more easily I’m able to connect with different client types and with a larger variety of clients,” he wrote.

White’s book goes far beyond these client engagement styles to explore clients’ behavioral profiles — broken down into three basic groups: “Affect” (feelers), “Power” (doers), and “Meaning” (thinkers) — and how each profile affects the way clients communicate and make decisions. He explores how group dynamics can affect clients’ behavior as well. Finally, he explores perhaps the most critical area for advisors: How clients’ personalities and behavior can change in high-stakes situations, which can include not only market drops, but personal situations such as children depleting their inheritance, clients depleting their nest egg too quickly, or couples disagreeing about goals, risk tolerance or spending. He wrote that these situations can trigger a client’s “shadow” or “dark” side: raising fears about failure, inadequacy, change and dying.

White also offers a chapter titled “Establishing Credibility and Building Trust with Clients of Any Type,” where he includes case studies and sample conversations. “If you can pursue your work with curiosity, wonder, drive and inspiration,” he wrote, “you will do your clients a great service.”

— Read Millennials Want to Make Wise, but Different, Money Decisions on ThinkAdvisor.