As an advisor, the best way to make the most out of your client relationships is to know what they need, when they need it, and be the one to meet that need. Keeping up with your clients and anticipating their needs at any given time will strengthen their trust in you and their satisfaction with your service.

Especially today, regulatory requirements, fiduciary standards, Labor Department rules and industry best practices all emphasize the importance of truly knowing each and every client to serve their best interests. So, it stands to reason that your credibility as an advisor hangs on how well you know your clients.

For further motivation, truly understanding each client’s needs is the best way to:

  • Provide a great, personalized client experience
  • Assist clients in making decisions they will ultimately be happy with
  • Guide clients toward better financial understanding and behavior
  • Earn referrals by turning clients into raving fans

However, not all clients are created equal, and their needs differ depending on their goals, stage in life, risk tolerance and preferred communication style. When I was an advisor, I would spend a great deal of time during the onboarding process noting how clients preferred to receive information and their attitudes toward the market, which helped me gauge their sensitivity to daily fluctuations and volatility. In an effort to streamline this process, it was helpful to segment my clients into distinct persona types to simplify my communications and make more efficient use of my time, which sometimes required me to reach out and communicate at scale.

Persona segmentation is typically broken down according to risk profiles, developed and captured via general observation (refined over years of experience), a Myers-Briggs evaluation, or a risk survey. Each approach is meant to provide a holistic, 360° view of the client’s unique personality traits that drive their behavior. What tends to follow is that each client will fall into one of four categories designed to increase the advisor’s understanding of how to approach the client with investment ideas to refine their communication strategy.

Segmentation via personas is definitely not new, and there is research to support persona methodology that proves it has a positive effect on sales and increases market share as well as customer loyalty. However, traditional risk surveys tend to focus solely on an investor’s ability to take risk, or demographic factors such as age, income and wealth. This is a great start, but in investment, we need to dig deeper to get to the core of what drives behavior.

Enter psychometrics and behavioral finance. Emotional and cognitive factors help us focus primarily on investors’ willingness to take risk, examining:

  • Motivations for behavior
  • Attitudes toward investing
  • Comfort levels with loss and volatility

Once you have a high-level view of a client’s risk tolerance, you can better personalize their investment strategy, communicate effectively, and avoid potential disappointments. Education is a key component of setting your clients’ expectations and helping them meet their goals. Enhancing your understanding of their fears, concerns and potential biases will help improve outcomes — for the client and for you.

How you communicate with each client is crucial, and the importance of the information you share cannot be overlooked. In fact, communication is critical to nurturing healthy client relationships and leads to increased loyalty. A 2016 advisor survey performed by Natixis showed that advisors believe communication with their clients is more important than investment performance. When asked why clients leave, 71% of advisors say it is due to the advisor’s failure to communicate frequently and proactively with their clients, while only 46% of advisors said clients leave due to a failure to meet return expectations.

Clearly knowing your customer goes beyond developing a customized investment strategy and includes a deeper understanding of the behavioral drivers that lead them to decisions and activities. You will find that with a stronger understanding of how and why clients make decisions, it becomes much easier to perfect your communication, tailor your services, and garner trust and loyalty among clients.

In our next post, we will explore best practices for leveraging client segmentation to enrich your client relationship, communicate better and improve outcomes.