A recent survey of advisors points out significant differences in client and advisor perceptions. Even when advisors and clients look at the same data on investment performance, they usually are looking at it from two totally different perspectives. Like a Rorschach test, the gap in perceptions between advisors and clients points to a deeper underlying issue.
- Sevently-eight percent of advisors held an optimistic view of the stock market. However, advisors on average said they believed just 18% of their clients were as optimistic.
- From a client's point of view (POV), judging portfolio performance over a short period may seems totally reasonable. From an advisor's POV, it should be judged on whether a client achieves his investment goals.
The gap in perceptions between clients and advisors is grounded in the preconceptions of each even before the first meeting occurs. The thought process looks like this:
This is because the industry still tries to apply institutional models to individual needs. Institutions have a single mandate, no tax liability, and they arrive at a wealth management solution based on time frame and actuarial assumptions that their goals will be achieved. They have the staying power to see that solution through.
Individuals have multiple goals (mandates) and are subject to behavioral biases and tend to abandon investment strategies. They travel a path toward a wealth solution rather than reaching it all at once. Individuals have to pay taxes, yet only 21% of advisors surveyed talk to their clients about the effects of taxes on their portfolios.
Individuals also have to deal with generational and personality differences within the family. Most individuals are part of a family, the lives of whose members are affected by the decisions they make about wealth management. Generational biases, family interaction, and behavioral biases are influences most advisors either barely touch on or completely ignore.
The secret marriage between family dynamics (software) and wealth management (hardware) is something very few advisors address. Advisory teams of the future will include an investment professional, various attorneys, a tax professional, a philanthropy specialist, a family dynamics specialist, and a wealth psychologist.
Some advisory teams are already incorporating family dynamics and psychology into their wealth management strategies.Over the next decade, the wealth management focus will flip. Families and advisors will assess a more robust set of factors having to do with family issues (generational attitudes towards wealth, problems of addictions, and personal goals), and select investment, legal, and tax strategies accordingly.
The intellectual, social, and human capacities of family members will be recognized as the assets they are and will be managed right alongside the material and financial assets. People will look back and wonder how and why things were ever done differently.
Media awareness fosters action. The new push led by Mary Gresham to create a division of the American Psychological Association specifically designed to work with investors on money issues families face is a great and exciting development. It is one cog in a developing new technology.
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