Knowing what an investor wants is hard. It requires being a teacher, behavioral coach and an advisor, but it doesn’t have to require being a mind reader.
To avoid misaligning clients’ investment strategies and portfolios, advisors need to ask the important and sometimes difficult questions first.
Investors aren’t going to come right out and tell advisors that they are interested in impact investing. Advisors have to ask and uncover the values that motivate their clients. To do so requires some probing, but these dialogues go a long way to ensure a better advisor-client relationship and an investor who is excited about their portfolio.
Stephen Wendel and his behavioral science team at Morningstar surveyed investors to find out if advisors actually know what their clients want. The research found that investors and advisors aren’t always on the same page.
“Investors and advisors normally talk about the client’s goals and investment strategy,” Wendel said. “But if an investor only cares about maximizing her returns, there may be a misalignment.”
That’s why Wendel believes that the best way to avoid misalignment is to find out what the investor’s values are right away.
“The safest strategy is often to simply ask upfront: ‘in addition to meeting your goals, what is it that you find important?’” Wendel said.
Questions & Etiquette
So, what questions should advisors be asking and when? How do advisors approach something as personal as values without making their clients uncomfortable or judged? And is there etiquette to approaching these sometimes-sensitive subjects?
As far as when advisors should be asking about interest in impact investing, Sonya Dreizler, an independent ESG and impact investing consultant, said it depends on where you are in your practice and what you have available.
If you haven’t begun offering sustainable solutions, Dreizler said to ask trusted clients, “If this is something the firm began offering, would you be interested in learning more about sustainable options?”
“I think some advisors would be surprised to learn that many investors would say ‘yes,’” said Dreizler.
If you already offer sustainable solutions, Dreizler said explaining what you have and asking if it’s something that they would be interested in is good.
“You don’t have to dive in and say, ‘is saving the environment important to you?’ It’s really more open-ended questions,” Dreizler said.
Even if you can’t provide an exact match between an investors values and investing interests with their portfolios, Dreizler says to still have the conversation about values anyway.
“It’s something you should start with from the beginning,” Dreizler said. “Clients want to be heard. They want to be understood. They want to be seen as a whole person for who they are.”
Although what you might be able to do for the investor depends on the amount they have to invest and your offerings, describing options and returns and comparing them to traditional portfolios (or their current one) can help investors see the big picture and decide if the sustainable solution is right for them.
“Most advisors I have talked to, who have had this conversation, are surprised at how many clients say they want to know more or are ready to make the switch,” Dreizler said.
What & How To Ask
Ben Smith, owner and operator of Cove Planning in Milwaukee, Wis., works specifically with Gen X and Y clientele, helping them plan for their unique interests like socially responsible investing.
“Many of my clients have unique interests related to impact investing, so it’s important that I understand their unique personal values and investing intent above and beyond simply seeking a return to reach a long-term goal,” Smith said.
Smith asks prospective clients the following to learn more about their investing interests:
- How would you describe your core personal values?
- What did you observe about money growing up, and how do you think that impacts your relationship with money today?
- Hypothetically, if all returns were the same, what types of companies do you want to invest in and why?
- What experience do you have with investing?
- What does “impact investing” mean to you, personally?
Unless you are an advisor who is branded as offering “green,” “sustainable” or “impact” solutions, investors will not be coming into your office to tell you that they want to invest in a sustainable portfolio. Asking questions, offering alternatives and having conversations about values can help clients learn what it is that they want from their portfolios.
“Your role as advisors is also to be an educator,” Dreizler said. “If you don’t ask someone else will.”
AdvisorNews Managing Editor Cassie Miller may be reached at cassie.miller@Adnewsfeedback.com. Cassie has an extensive background in magazine writing, editing and design. Follow her on Twitter @ANCassieM.