When it comes to advising clients, advisors often rely on demographic information to formulate a retirement plan. But demographics don’t provide a complete picture — especially for female clients. For many, adding psychographics to demographic information and traditional financial planning can be a much smarter way to come up with a personalized retirement strategy.
Psychographics rely on a deeper level of questioning to better understand the client’s aspirations, interests, personality and values, says Karen McIntyre, managing director and senior financial advisor at Wescott Financial Advisory Group.
“An advisor could ask about what the client does with their take-home pay or what they did on their last vacation,” she adds. It’s less about leading the client than it is about truly listening to them.
The advisor might find out, for instance, that the client has a visceral reaction to pharmaceutical stocks, which might lead the advisor to recommend a more socially responsible investment approach for the client. An advisor could also ask how the client gifts money or how they imagine or picture themselves during retirement. Psychographics, in other words, provide a more qualitative approach to financial planning.
Getting a better picture
While advisors might believe they have a full understanding of the client from their age, income level, marital status and gender, psychographics can fill in the gaps and offer a much more comprehensive picture of the person.
Its roots date to the early 1900s, though the term itself likely came into use in the 1960s. Today, savvy advisors are concept the technique to transcend the superficial details of a client’s life. A person’s attitudes, opinions, behaviors, habits and lifestyle choices directly affect their financial choices — for better or worse — and advisors can dig deeper into psychographics to more effectively help the client.
“We need to understand why people do what they do to better meet the client where they are,” says McIntyre.
Psychographics is also particularly useful in instances where the advisor might unwittingly fall back on stereotypes when crafting a financial planning strategy for their client. It’s not uncommon for people — advisors included — to think that women act in a particular way or that their financial needs are all the same.
“It’s simply cognitive bias, and stereotypes can lead advisors to make bad decisions,” says McIntyre.
The behavior isn’t necessarily overt. Advisors, much like everyone else, come to the table with unconscious biases and preconceived notions about people, says McIntyre. But generalizations aren’t particularly helpful when devising a retirement strategy.
More than the numbers
Falling back on the more traditional, numbers-oriented approach to retirement planning isn’t enough, either. There are advisors who are much more comfortable handling the quantitative side of the business — looking at a client’s finances and offering financial advice based on it. But that’s just one side of the story.
“Very often, financial planners don’t take the time to have the deep and sometimes difficult conversations,” McIntyre notes.
But with psychographics, advisors are less likely to fall back on boilerplate solutions for their female clients.
“You have to listen to their story — their approach to money,” she says. Simply put, there’s not one approach that will work for everyone. “Understanding the psychographics of the client will make an advisor a far better practitioner.”