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The 6 Personality Traits of Successful People

Money is what makes all your clients’ priorities possible, Jean Chatzky, financial editor for the Today Show, told FPA Annual Conference attendees earlier this month.

And if they’re constantly worried and stressed about it, they’re probably going to stumble upon what seems like more than their fair share of problems. Though this might sound a little like wishful thinking Chatzky claims it’s true: more happiness will lead to more money for your clients.

Chatzky outlined the six traits of successful and wealthy people that she identified through her research. Chatzky conducted a study of 5,000 people and found that personality traits are just as important as good financial habits.

Here are the six factors Chatzky found were key to success:

Happiness or optimism. Happiness is key to success—just not too much of it. Among Chatzky’s study participants, those who were too happy (a 10 on a scale of 1 to 10, 10 being blissed out) weren’t as successful as those who were an eight. The eights were better problem solvers, they lived longer, were more successful, earned more money, had higher amounts of emergency savings and received greater evaluations from their colleagues. If your clients are too happy, perhaps find a way to make them a little more cognizant of reality; but if your clients are miserable, figure out how they can make themselves happier.

Resilience. Thomas Edison “failed” hundreds of times when inventing the lightbulb, but he didn’t see it that way. He said he succeeded in proving that hundreds of ways didn’t work. People who have resilience can overcome problems in their work, personal and financial lives more readily than people who aren’t resilient.

“The best news about resilience is that you don’t have to be born with it,” Chatzky said.

Connectedness. People who had built up a good amount of social capital—connecting with people—were more successful than people who did not have good connections. These people made time to connect with people despite their “busy” schedules. Successful people not only made time to connect with friends and family but also to forge new relationships.

Passion. Having passion about a career is what moves people from a life of financial struggle to one of financial success. The people who have passion just want it more than others. These people are not just pursing a job or even a career, they are living and doing what is their calling. Figure out what your calling is and live your passion.

Financial Habits. Successful people are habitual savers, have appropriate debt, are able to level emotions and have a long-term plan, Chatzky said. Chances are your clients have better financial habits than the average American (most of whom are terrible savers), but it’s never a bad idea to reinforce their good habits.

Gratitude. You always want more if you’re not grateful for what you already have. Chatzky said gratitude is key among successful people and as a result of them being more grateful, they are also more generous (giving to people and charitable causes), less depressed and healthier.

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Ana Trujillo Limón is associate editor of the Journal of Financial Planning and the editor of the FPA Practice Management Blog. Email her at alimon@onefpa.org. Follow her on Twitter at @AnaT_Edits.

 


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Guided Mastery: Helping Your Clients Find (or Re-Discover) Investing Confidence

As you’re scrolling through your daily videos (we all do it), you may come across an Olympic-level skier falling right out of the gate, an accomplished stage actor flubbing his lines or a famous crooner forgetting the words to the National Anthem on live TV. Besides the fact that, for some reason, many of us are unable to stop watching these types of videos, one thing unites each incident: a crisis of confidence.

Confidence is a fickle, erratic thing. It can take years of hard work to gain, and only seconds to lose. In the world of investing, confidence can be one of the most important pieces of the puzzle when it comes to staying on track toward our goals, and yet it doesn’t receive nearly the same amount of coverage as topics like becoming a successful investor.

How do we help our clients go about getting, or re-discovering, the self-assurance we need to get to our goals?

The Root Cause: What Are We Really Afraid Of?

Money remains the single top stressor for Americans. In fact, according to the American Psychological Association, money has been our top concern since 2007, the first year the organization ran the Stress in America survey. It comes as no surprise that money was on the minds of many in late 2007 (and still is) given the market environment during that time.

On October 1, 2007, the S&P 500 closed at a level of 1,549.38, a high at that time. From there, things went steadily downhill, with the index bottoming out at 735.09 on February 1, 2009. This brutal bear market likely took a toll on the confidence of all investors.

David Kelley, international influencer and co-founder of innovative design firm IDEO, believes that a loss of confidence is often comes from our fear of judgment.

In his popular TED Talk “How to Build Your Creative Confidence,” Kelley discusses a situation in his third-grade classroom where his friend Brian was making a horse out of clay. A girl sitting at Brian’s table leaned over and said, “That’s terrible. That doesn’t look anything like a horse.” Brian’s shoulders sank, and he threw the clay back into the bin, never to use it again.

I have a similar story involving struggling with multiplication tables when I was a child, and I still vividly remember how many years it took to feel even remotely confident in anything that requires math (I still ask my wife to double-check tips at restaurants). According to Kelley, these types of stories are common, resulting in many of us growing into adulthood feeling like we’re “not creative,” “not good at math” or “not the investing type.”

Kelley dug deeper into the issue of confidence loss to try to find a solution. He began working with Albert Bandura, a renowned psychologist and innovator in the field of phobias. Specifically, Bandura pioneered a process he terms “guided mastery,” in which, by taking small steps, a person can move from debilitating fear to complete confidence (or “self-efficacy”). To illustrate the “guided mastery” process, Kelley described Bandura’s experiment with ophidiophobia, or the abnormal fear of snakes where Bandura guided a group of people terrified of snakes from refusing to go into a room with a snake to holding the snake in their laps.

If you’ve ever known anyone with a crippling fear of snakes, you can understand how amazing this truly is.

While Kelley’s point is about creative confidence, I believe the process of “guided mastery” has interesting parallels and potential applications to the world of investing.

In many ways—especially for those who are exposed only to the constant stream of negative retirement savings statistics, scare tactics designed to initiate sales conversations and forecasts of another impending financial crisis—investing in the markets can be a truly scary proposition.

If you use the parallel to a phobia, one false move can be enough to make us lose our confidence, possibly for good. Kelley and Bandura show us that, through small steps and minor victories, even the most powerful phobias can be overcome. Here are a few tips to help clients get started.

1.) Recommend Clients Make a List of What They Don’t Know

When it comes to finding a place to start in building investing confidence, it might make sense to have clients start with what they know they don’t know.

By encouraging clients to make a list of the top five or 10 things they know they want or need to know about finance or investing, you have provided them with an all-important foundation. From that list, you can work together to come up with search terms to put into Google or their search engine of choice.

Once they’ve read a few articles and/or watched a few videos, they will be able to check a few of the basic items off their list, and will also begin to understand what type of educational content works best for them. The more they consume, the more they understand what they like and what truly helps them build knowledge and confidence.

The rise of the do-it-yourself culture, powered by video platforms like YouTube, has made learning the basics of almost any skill and/or industry more accessible than ever before. In addition to holding an amazing library of educational content, YouTube is also the second-largest search engine in the world by volume, and thus can provide a great place to start checking items off of their list.

As you help clients move through their list, I think you will find that you’re able to help them add new questions and topics to a larger list as you go. Not only will they be able to dip their toes into more advanced ideas as they move forward, but they will also be able to connect the original terms they learned with new terms, which will lead to a wider understanding of the topics themselves.

2.) Encourage Clients to Celebrate the Small Things

As you work toward helping clients gain knowledge and build confidence, don’t forget to encourage them to celebrate the small successes along the way. Yes, it’s a cliché, but I believe there’s quite a bit of truth behind the common platitude for a couple of reasons.

First, the road to investing confidence can be long, and focusing solely on the ultimate goal can be overwhelming. While a focus on the finish line is certainly important, adding a few horizon lines along each step of the journey can make the goal seem more achievable. Our brains are actually not wired to hone in on the distant future, so maintaining short-term benchmarks is generally a more effective way of staying on track.

Second, never underestimate the power of positive reinforcement. Because saving and investing success generally happens over the long term, it can be difficult for clients to see how much of an impact their hard work and diligence is making from month to month. Celebrating the fact that they saved 10 percent of their paycheck over a three-month period or that they made it through a whole year without taking any money out of their retirement savings can help them maintain perspective beyond what the numbers are showing over the short term.

3.) Help Your Clients Avoid Dwelling on Their Mistakes

Investing over a lifetime is a marathon, and it’s natural to make mistakes along the way. As you well know from your daily meetings, when investors do make an error or miss an opportunity, it is often magnified by the fact that they are forced to watch constant coverage of the teenage billionaire who went right when they chose to go left. It’s not a great feeling, but few things can hurt our confidence more than attempting to compare our situations to others. It’s certainly easier said than done, but it can pay to take a moment to remind our clients (and help them come to the same conclusion), for the most important things at least, that they are the best judge of their own success.

As it pertains to investing and the financial markets, clients have to give themselves a break when it comes to a tough week or month in the market. I encourage you to help clients take it to the next level and to completely get away from thinking about the markets in terms of “winning and losing.” The potential to win or lose implies a game, and it shouldn’t be a game when it comes to their hard-earned money.

Instead, help clients think of each bump in the road as the next step toward confidence. When I was first starting out and knew very little about investing basics, when I saw or heard something telling me I was behind in some way, I committed to making sure I understood exactly what that meant.

If you can help train your clients to either do the research on their own or come directly to you when they receive an email telling them about a decision they must make right away, see a term they don’t understand or come to a crossroads at which they struggle to make a decision, you can serve as that calming element that makes each mistake or stumble a lesson.

4.) Help Prospects Know That Expert Help Is Available

Each of us has instant access to an unbelievable amount of information on almost every topic imaginable. Like anything else, it’s up to every investor to decide if they want to go it alone, or enlist expert support.

It’s certainly open to interpretation, but in my opinion, the concept of guided mastery can work both ways in the investing world. Whether an investor chooses to work with a financial professional or not, the creation of a plan, the diligence to stick with it and the commitment to build knowledge one step at a time are all important parts of the process. There are, of course, pros and cons to both strategies, and the decision all comes down to each investor’s specific needs, goals, and unique financial situation.

Because the world of investing is so vast and complex, I truly believe financial confidence and even skill require a commitment beyond simply mastering the nuts, bolts and basics. At some point, most investors will reach the point where they can no longer manage their financial landscape on their own. From a prospecting standpoint, this is why creating (or at least sharing educational content) can be so important. When that investor reaches the point of wanting or needing help, I believe they are more likely to go with someone who has already provided them some value along the way.

All else being equal, I believe that, at the very least, investing confidence is something that is attainable for us all. Just as Kelley encourages those who have lost their creative confidence, through a series of small steps and successes, you can be the guide who helps clients work toward a place where they feel they have done what they set out to do, and eventually, take the last step and touch the snake.

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Dan Martin is the Director of Marketing for the Financial Planning Association®, the principal professional organization for CERTIFIED FINANCIAL PLANNERTM (CFP®) professionals, educators, financial services professionals and students who seek advancement in a growing, dynamic profession. He is an award-winning author with a diverse financial services industry background in marketing and communications. He earned a journalism degree from the University of Denver and his MBA in marketing from the Daniels College of Business.

 


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4 Steps to Generate Conviction and Build a Connection

In a recent group coaching session, Angela, a new financial adviser, shared a story of meeting with a client and knowing that the client needed renter’s insurance. Although the client saw no value in getting this type of coverage, Angela was adamant about helping him understand the risks he was taking, which far outweighed the costs. Instead of just telling him what she thought, she simply asked him enough questions to get him to come to his own conclusion that it was indeed something of value.

This level of conviction is an admirable pattern that I often see in veteran financial advisers and insurance agents but I rarely see in rookies. The reason is veterans simply have had more client experiences and thus know the value of (and rationale for) their recommendations. In other words, they generate conviction to build a connection.

The following is a brief overview of the steps that you could use to increase your own level of conviction for your products and services.

Step 1: Know Why Clients and Prospects Need Your Products and Services

Angela took a firm stance because she knew without a doubt that her client needed renter’s insurance. She had had other clients who didn’t have it and sadly paid the price when they experienced the loss of their possessions. It is vital to be able to articulate the tangible benefits or the “why” of your recommendations. If you cannot clearly connect the dots for your prospects and clients, they don’t know what they don’t know and could make some significant choices that could have significant consequences.

Step 2: Know the Right Questions to Ask

 When Angela shared her interaction with the group, I noticed she had included one very important detail, that she had asked her client questions rather than just telling him what she would do. The reason this is so important is because people hate to be sold to but they love to buy. To accomplish the aforementioned step, all you have to do is map out key questions to help lead the prospect or client down a path to understanding why they should buy.

Here are some examples of some of the questions that Angela had for her client:

  1. “How much do you think all of your valuables, furniture and many miscellaneous items in the house you rent are worth?”
  2. “Do you have that much money to replace them in case of a fire or flood?”
  3. “Do you know how much renter’s insurance is per month?”
  4. “Do you think spending $6 dollars a month is worth the cost of covering your items should you ever experience their unexpected loss?”

Angela didn’t make much on this policy but that wasn’t a concern, she had the best interest of her client in mind.

Step 3: Know How to Ask for the Order

 If you re-read the last question she asked, it was a closed-ended question that essentially asked for the order. Of course it was worth it for her client to pay $6 a month to cover all the items in his home. That’s a no-brainer! But, what if the cost had been much higher, say tens of thousands of dollars?

If this is the case, you craft as many questions as you need to help them understand the benefits. Next, you ask the questions and let the prospect or client end up making a decision they feel they made without you making it for them. Then, you summarize what they currently have versus the benefits of what you are recommending. Finally, you sum things up with this question, “Are you comfortable with moving forwarding doing [suggested action] based on the benefits of what we just discussed?” If you have led them to a place of clarity and provided plenty of information emphasizing the advantages, it should be a relatively easy to wrap the conversation.

Step 4: Evaluate Your Process

After you are finished with your appointment, it’s important to take time to evaluate your process. You need to know if your conviction was properly communicated to build a connection with them. If not, simply go back to the beginning and work on each of the steps discussed and fine tune them based on what you heard and noted during your discussion.

Why Conviction Builds a Connection

When I congratulated Angela on sticking to her guns, asking questions and letting her client come to his own conclusions, she already had felt good about what she did but the group and myself validating her efforts solidified that.

The reason generating conviction in your recommendations builds a connection with prospects and clients is because you are coming from a place of sincerity, it’s not about getting the sale but putting the client/individual’s needs first.

If you are ready to take your business to the next level, schedule a complimentary 30-minute coaching session with me by emailing Melissa Denham director of client servicing.

Dan Finley
 Daniel C. Finley is the president and co-founder of Advisor Solutions, a business consulting and coaching service dedicated to helping advisers build a better business.

 


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Use These Behavioral Tips to “Science” Your Clients on Saving

According to a 2017 study from the Employee Benefit Research Institute (EBRI), only 61 percent of responding American workers reported having saved money for retirement, with 56 percent of respondents reporting they are currently saving (at the time of the survey) for their golden years. Only 18 percent of respondents feel very confident that they are doing a good job preparing for retirement, with another 38 percent feeling somewhat confident.

As a financial planner, this isn’t news to you, though it may be more disappointing for you than most given your line of work. As someone on the front lines of trying to help people understand the value of saving for anything later in life, you know it can be an uphill battle.

In this post, I want to provide you with a few tools to help your help clients get past some of the standard pitfalls around saving, using the very science that generates the issues as your weapon. Helping clients understand the reasons behind why we make excuses to avoid saving may be just what they need to overcome these challenges.

Excuse No. 1: I don’t have enough money to save.

For some investors, this is a valid excuse. If the money’s not there, it’s not there. For others, however, it may be the type of Catch-22 situation that you can help attempt to reverse simply by understanding behavioral tendencies. In other words, the old adage telling us that “the more we make, the more we spend,” is actually deeply rooted in behavioral science.

One of the more useful qualities we have as human beings is our ability to quickly adapt to changing circumstances. But some experts like James Roberts, professor of marketing at Baylor University, believe that our adaptability may hinder us in terms of saving and spending. He uses the example of a college student who wants to get out of his or her dorm, then moves into a rental house but gets tired of having roommates, then dreams of a small house, then a bigger house (and on and on from there) to show that our minds very quickly move on to the next step when we attain a goal or desire.

Another reason behind our penchant to overspend and under-save is simply that we may have seen it from our parents and them modeled the behavior. In other words, over time, we have fostered and intensified these bad habits which, as we all know, can be extremely difficult to break. However, some researchers believe that we have the ability to change almost any habit through repetition via a series of mental processes.

While you (and by extension, your clients) can be the judge of whether this might work for you, I would recommend picking up the book The Power of Habit by Charles Duhigg, which takes a serious look at habit formation and the science behind why we do what we do. Besides the interesting case studies and frameworks, the heart of Duhigg’s theory centers on the importance of simply understanding that habits can be broken:

“Once you understand that habits can change, you have the freedom—and the responsibility—to remake them. Once you understand that habits can be rebuilt, the power becomes easier to grasp, and the only option left is to get to work.”

The point? Clients may be, in some ways, relieved to hear that the negative behaviors that keep them from saving money are not totally their fault (thanks a lot, science), but an equally important part of the message is that there are ways to fight to overcome these ingrained habits.

Excuse No. 2: Retirement (or other savings goals) is/are just too far in the future to focus on today.

I was meeting friends at the National Western Stock Show in Denver a few summers ago, and when I arrived, I realized that I hadn’t purchased tickets (and as a result, probably could have reached up and touched the roof from the nose-bleed seats I had to grab on-site). My immediate thought was, “How did you not think to do the one thing you needed to do prior to attending that event?”

According to a recent study, part of the answer (beyond my own struggles in staying organized) may be that I made the plans too far in advance for my brain to plan for that contingency. This story dovetails well with one of the most common excuses for failing to save for retirement (or other goals)—investors just don’t have the wherewithal to plan that far ahead. If it’s difficult for us to plan for an event a few months down the road, remember that your clients are looking at planning 30 or 40 years into the future.

According to Dale Griffin, associate dean and professor of marketing at the Sauder School of Business at the University of British Columbia, we can look at “temporal construal” and “loss aversion” as potential behavioral biases that make it difficult to make good decisions about our future. Griffin explains “temporal construal” as the tendency for far-off events to be mentally experienced differently than closer events.

“Events or ideas far off in time are thought of in abstract and general terms, with an unavoidable overlay of optimism; so thinking about yourself (or your children) in 40 or 50 years creates a mental image that is akin to pondering a vague, general, overly rosy idea rather than a detailed individual with real problems,” Griffin wrote in this Slate article.

In the same vein, studies on the theory of “temporal discounting,” or the idea that individuals prefer more modest immediate rewards to larger potential future rewards, have shown that we have trouble seeing future events in clear focus and difficulty in attempting to imagine what our future selves will look and act like. One can see how these types of mental blocks can affect our ability to take saving for the future seriously in the present.

“Loss aversion,” according to Griffin, is essentially the idea that humans are more likely to think about potential “losses” than potential “gains” in the long term. In other words, we are programmed to be more worried about future debt than what we might “gain” by saving for retirement, which may result in attempting to pay off our mortgages or student loans more quickly, at the expense of building a retirement account.

However, the idea that repetitious activities in the present, such as monthly mortgage or student loan payments, can help our minds focus on making decisions to solve long-term challenges in the present, can offer a glimmer of hope from a savings perspective. Specifically, the idea that providing ourselves with short-term rewards or benchmarks (instead of trying to visualize a single “number” or long term goal), may be helpful in building a saving habit for the long-term, and can at least provide a place to start (or something to hang our collective hat on).

In addition, these findings may help you help your clients look at the tendency to not save enough with a fresh perspective, and to consider fresh solutions. Instead of beating themselves up because they failed to meet their savings goal for the third straight month, they could try something more constructive and potentially even fun.

For example, you may recommend that they download of the many free face-aging apps available for iPhone or Android. AgingBooth and FaceApp are two of the more popular applications that use alogrithms and neural-network technologies to show us what we might look like when we’re much older. Although the accuracy of the imagery is certainly up for debate, I can attest that seeing my face aged years into the future was a disconcerting experience and provided a surprising dose of perspective.

Perhaps these applications give you a unique opportunity to break through the “temporal discounting” barrier and make the idea of aging more real for your clients. MerillEdge, in partnership with Bank of America, was one of the first to launch this type of application in 2014 (called FaceRetirement), and according to Bank of America, 60 percent of the nearly 1 million people who used the app chose to learn more about retirement and beginning to plan for the future.

Or, because the causes we have discussed have roots in behavior, perhaps finding a few easy-to-consume, investor-friendly articles to share with your clients on behavioral science will help provide some useful insights that they just didn’t have before. While we can’t say the same for all financial topics, it is an extremely interesting part of what you do as a planner and has the potential to engage a wider audience.

Excuse No. 3: I can’t save money because I lost too much in the last crisis.

There are certainly situations where this might be true, and if that’s the case, your client is in good hands working with a planner like you. For many others, and especially individuals in younger generations, the statement above is a prime example of the “sunk cost fallacy,” the very same behavior that kept me sitting in the theater during the fourth installment in the Transformers franchise instead of walking out after the first 20 minutes.

A “sunk cost” can be defined as any cost (not just monetary, but also time and effort) that has been paid already and cannot be recovered. The “sunk cost fallacy” is an extension of the human behavior of “loss aversion” mentioned above, in that we are programmed to focus more on the costs we have already accrued (and that we can never get back) than the future experience we are putting our time, money or effort toward.

Thus, the more we invest in something, the harder it may be to let it go (even if it turns out to be a terrible investment). I’m sure that every one of your clients can think of a time where they continued to stick with something for the sole reason that they had already put a lot of money or effort toward its completion – we all have. And to be clear, sometimes that can be a good thing (i.e., finishing a degree, completing a rigorous fitness program, climbing a difficult peak, etc.).

However, the “sunk cost fallacy” can become an issue with saving money, because subconsciously, our minds may be thinking about the money we have lost in the past and urging us to try to get that investment back. As you are well aware, this can encourage risk-taking and other behaviors that have the potential to cut into the portfolio your clients have worked so hard to build.

Conclusion

If this was easy, Amazon wouldn’t have 105,000 results on the search term “behavioral science.” The human brain is a powerful tool, and as such, each of the behaviors I mentioned here will not be easy to counteract.

Because these behaviors are all propagated by the mind, simply understanding the “why” behind our struggles to focus on the future is an important place to start. Learning how these behaviors may affect them in a saving capacity is only the first step for your clients—the next will be helping encourage them to put in the effort on a daily basis to overcome these obstacles.

Your clients are facing an uphill battle, but there’s nobody better than you to help guide them.

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Dan Martin is the Director of Marketing for the Financial Planning Association, the principal professional organization for CERTIFIED FINANCIAL PLANNERTM (CFP®) professionals, educators, financial services professionals and students who seek advancement in a growing, dynamic profession. You can follow Dan on Twitter at @DanW_Martin.


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How Meditation Could Help Your Clients

Habits your clients have developed around money have most likely been with them for decades. One study from Cambridge University found that people develop money habits by the age of 7.

It might be beneficial to your clients to recommend meditation to tackle their bad money habits—whether it’s overspending online, living beyond their means to keep up with their neighbors, or continually financially supporting an adult child.

“When you just think about money, it’s all psychologically based,” said Michael Liersch, head of behavioral finance at Merrill Lynch Wealth Management, in a March 2017 article on TheStreet.com “To really be authentic about it, the whole premise of money is emotionally based in essence. Removing emotion from investment decision-making is just a false premise to begin with.”

Just as mindfulness and meditation can help a person who is trying to lose weight, it can also help somebody who may be trying to overcome negative money habits. One study from Harvard University found that mindfulness meditation actually increases the amount of gray matter in the brain’s frontal cortex, which aids in memory and decision-making.

The New York Times reported that a different study from the same researchers found areas of the brain that deal with emotional regulation, learning, focus, and perspective were all thickened after just eight weeks of meditation.

“The payoff s that come from establishing a meditation practice are well worth the time invested,” Leisa Peterson, business strategist and money coach, wrote in a 2015 Huffington Post article. “When you become more mindful about money, you learn a great deal about yourself and also your ability to be creative and intentional, rather than reactionary,” Peterson wrote.

Peterson recommends guided meditation apps to get your clients started. Meditation to overcome negative money habits seems to have worked for some people.

Rebecca Velasquez told LearnVest in 2016 she was able to find financial clarity and save $25,000 by being more mindful. “Meditation requires guidance and support as well as a willingness to take it on every single day,” Velasquez said. “Once that willingness is there, it opens up a whole world of possibilities and revelations, which may end up benefiting your well-being—financial health included.

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Ana Trujillo Limón is associate editor of the Journal of Financial Planning and the editor of the FPA Practice Management Blog. Email her at alimon@onefpa.org. Follow her on Twitter at @AnaT_Edits.


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These Tips Can Help Advisers Attract—and Keep—High Net Worth Clients

By Robert Powell, MarketWatch.com

For many advisers, high net worth individuals or households — those with more than $1 million in investible assets — are a kind of Holy Grail.

The reasons are clear. HWNIs, which represent just 0.7 percent of the world’s adult population but own 45.2 percent of the wealth, are good for business. They’re highly profitable and loyal, according to Rebecca Li-Huang, a wealth adviser at HSBC, who wrote a chapter in the June 2017 book Financial Behavior: Players, Services, Products, and Markets.

Consider: An adviser can earn one-half of 1 percent of assets under management on a $10 million account, say $50,000 a year. By contrast, the very same adviser would earn only $1,000 a year on a $100,000 account. For financial advisers, the attraction should be obvious.

But there’s more to the story, and advisers should get to know the psychology of HNWIs before taking them on as clients. Just like regular folks, Li-Huang wrote, they are prone to behavioral biases and judgment errors, not perfectly rational, utility-maximizing, unemotional homo economicus.

In short, wrote Li-Huang, they are humans. And in the U.S., according to Li-Huang, they often share a particular way of thinking about what they want from their money that financial advisers should consider when trying to serve them.

American HNWIs like to direct their investment according to their personal beliefs and values, and they play a large role in public life through philanthropy and politics, according to Li-Huang. And many want to leave a legacy by giving back to society while generating a financial return on their investments.

“The holistic returns on cultural, environmental, social, and political causes are gaining importance in wealth management,” wrote Li-Huang. “The trend toward helping HNWIs address their personal aspirations and social-impact needs is part of a broader wealth management industry transition toward giving holistic wealth advice.”

Focus on goals while mitigating stress

How can advisers do that? For starters, according to Li-Huang, advisers can focus on goals-based financial planning, holistic wealth management, and services that address investments, lending, tax and estate planning, insurance, philanthropy, and succession planning.

With goals-based planning, wrote Li-Huang, success is measured by how clients are progressing toward their personalized goals rather than against a benchmark index such as the S&P 500 stock index. (Publicly traded securities don’t necessarily contribute that much to a HNWI’s wealth, notes Li-Huang, as just one in eight millionaires say equities were an important factor in their economic success.)

Still, she argues, HNWIs do need to invest in diversified markets and use tax-efficient strategies. And advisers can add value by “mitigating psychological costs, such as reducing anxiety rather than improving investment performance” and by focusing on financial planning and advice on savings and asset allocation.

Li-Huang cited research that suggests that investors don’t necessarily want the best risk-adjusted returns but, rather, the best returns they can achieve for the level of stress they have to experience, or what some call anxiety-adjusted returns.

In the cast of HNWIs, they tend to practice something called “emotional inoculation.” They outsource the part of the investment decision-making that induces stress, according to Li-Huang.

HNWIs are especially looking to their wealth manager for help with philanthropy. They are looking for “support and advice, such as setting goals and defining their personal role in their areas of interest, identifying and structuring investments, and measuring outcomes of their social impact efforts,” she wrote.

Given that advisers need to provide their HNWI clients with tax and philanthropy specialists.

In advisers they trust

When HNWIs consider selecting an adviser, they tend to focus more on honesty and trustworthiness than past investment performance or standard professional credentials, according to Li-Huang.

That’s not to say that professional credentials and competence don’t matter — they do — but, rather, that they are not sufficient in and of themselves, according to Li-Huang.

HNWIs — who tend to have less time and resources for due diligence than typical clients of financial advisers — use something called “trust heuristics” when searching for an adviser with whom to work.

In other words, they’re even more likely to assume that the category leaders are among the best in a highly regulated world even as they hold advisers referred by family members, friends and acquaintances in high regard, according to Li-Huang.

Consequently, perhaps, HNWIs tend to trust their advisers much more than less wealthy retail investor trust their financial advisers.

So, what is trust to a HNWI? According to Li-Huang, HNWis trust advisers who show signs that they’re acting in the client’s best interest, reach out proactively, charge reasonable fees, deliver mistake-free work — and admit when they’re wrong.

In many ways, attracting and retaining HNWIs isn’t much different that getting and keeping what are called “mass affluent” clients, who have with assets of less than $1 million. But the differences are worth noting, because the stakes are higher, and a bit of extra knowledge can pay off.

This story first ran on July 21, 2017. Reprinted with permission.

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5 Tips for Advising Female Clients of the Sandwich Generation

It is estimated that by the year 2020, women are going to control 67 percent of U.S. wealth, according to a study by Fidelity Investments. And we know that currently the majority of primary caregivers for children and elderly parents are women.

Chances are in the next few years, you’re going to see more female clients who are working full time, taking care of their children, and taking care of their older, and possibly ailing, parents.

The National Alliance for Caregiving and the AARP estimate that 66 percent of caregivers for elderly parents are female. The 2011 MetLife Study of Caregiving Costs to Working Caregivers (the most recent MetLife study available) estimates the total cost of lost wages, pension benefits and Social Security benefits for the average female caregiver is $324,044.

Dennis Stearns, CFP®, ChFC®, founder of Stearns Financial Group, said in the March 2017 Journal 10 questions interview that women in the sandwich generation need both financial and life planning from their advisers. Because not only is the financial toll great for these female caregivers, so is the toll on their health. The American Journal of Public Health reported that women who cared for parents were two times as likely to experience depression and anxiety as those who are not caregivers. According to Stearns, the best thing to do is to plan early before the sandwich caregiving crisis hits.

If your clients haven’t planned, here are some things you can do to help them:

1) Advise them to not do anything drastic. Marguerita M. Cheng, CFP®, wrote on Kiplinger.com that the best financial advice to sandwich caregivers is to not do anything drastic, like quit their jobs.

2) Encourage them not to accumulate any new debt. Go over their budget and help them figure out where they can trim expenses. Help them find and apply for services their parents may qualify for to help offset expenses.

3) Refer them to other professionals. Many other professionals can help, including counselors, tutors, or in-home health aides. Ensure any professionals you refer are thoroughly vetted.

4) Encourage them to find time to care for themselves. Mark Struthers, CFA, CFP®, wrote in the Christian Science Monitor that clients need to take time to recharge their batteries.

5) Have them enlist the help of other family members. Cheng suggested on Kiplinger.com that asking for help from siblings can help alleviate stress. “Being smart and financially sound will help decrease stress and allow families to enjoy time together,” she wrote.

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Ana Trujillo Limón is associate editor of the Journal of Financial Planning and the editor of the FPA Practice Management Blog. Email her at alimon@onefpa.org