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Avoid the ‘Assumption Trap’ With Your High-Net-Worth Clients

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We’ve all done it. We make assumptions based on our life and career experiences. As an advisor, you have likely developed a strong gut sense of your customer base and market. Your instincts may have led you to make some good choices, maybe even saving time in the process.

But what about the prospects you didn’t attract or the valued clients you lost? Could it have been because you made the wrong call in a rush to form an opinion? People may seem easy to size up, but they can often surprise you. In a people-oriented industry like financial advising, presuppositions about what people want (or don’t want) can wreak havoc on your bottom line.

Forgo Assumptions and Use Information to Engage

Like any client segment, high-net-worth (HNW) breadwinners do not like to be taken for granted. Nor do they want an advisor who wastes their time with solutions to problems they don’t have. Yet, despite being a key target for many financial advisors, there has been little research on this market segment and how to engage them.

FlexShares ETFs commissioned an extensive study of more than 460 high-net-worth primary earning men and women across the U.S. Participants had a household income of over $200,000 and liquid assets of at least $1 million (excluding retirement and primary dwelling, lowered to $250,000 for ages 35 to 39).

We set out to learn about their financial acumen, risk confidence, investment preference and lifestyle goals. Our survey revealed insights on what male and female primary breadwinners expect from their advisors.

Let Go of Stereotypes for Better Conversations

The research revealed some tenacious stereotypes that may not apply to this group of high earners.

1. Appetite for risk. One of the most enduring stereotypes in the financial advising industry is that women are afraid of risk and men are more aggressive investors. The study revealed that men were more than twice as likely as women (31% vs. 14%) to identify as conservative investors. Furthermore, it was almost an equal split of men (27%) and women (26%) that identified as either moderately aggressive or aggressive investors.

Conversation starters: Moving beyond stereotypes and the standard risk questionnaire is important. Talk to your clients about risk in real terms they can feel and visualize. Instead of asking your client if he or she can tolerate a 10% decline in their portfolio, translate that to a real dollar figure. Follow with questions about other potential unexpected expenses that could derail short-term investment goals. What is he or she willing to sacrifice to stay on track?

2. Investment acumen. More than 40% of the men surveyed rated themselves a perfect 10 — or expert — on their investment expertise. They also told us that they viewed their association with their advisor as one based more on performance than on a personal relationship. Understanding whether this is also true for your clients is critical to being able to forge a trusted and long-term relationship.

Conversation starters: Take the time to assess your prospect or client’s true investment knowledge. Ask them questions about their expertise, such as whether they have managed their own portfolio in the past or how they collaborated with their past advisors. If they’ve managed their portfolio, ask about their go-to resource for investment research and the time they devoted to constructing and rebalancing their portfolios. And follow up with the request for them to tell you more. Why did they leave past advisors? This may provide insights for both you and your client in what to expect from the relationship.

3. ESG appeals to men, too!  We’re used to hearing that environmental, social and governance (ESG) investing appeals to women and millennials. While this is true, the high-earning men in our survey were slightly more interested in this type of investing than women (7.5 vs. 6.8 out of 10).

Conversation starters: Be sure you’re discussing this type of investing with all of your clients. Ask them if they understand what it is. Some clients may remember socially responsible investing as a strategy that limited return potential. Be sure to explain why that’s no longer the case. Your executive clients may already be fluent in ESG if their firms or the boards on which they serve have sustainable investment mandates in place. Ask them about how their organizations select such investments. Being proactive with these conversations will set you apart from your competitors.

Reality-Check Your Assumptions

The cure for the tendency to make common snap judgements: taking the time to make an informed assessment. Consider the types of assumptions you might be making about prospects and clients and then think about questions you could ask them to better understand their personal point of view. Be careful your questions aren’t leading your client in a certain direction. Open-ended questions are always the most revealing and may be the key to building more understanding and fruitful relationships.


Laura Gregg Laura Gregg is the director of practice management and advisor research for FlexShares Exchange Traded Funds.