By David Miller
Few things are more personal than one’s finances. And when it comes to making major financial decisions, emotions don’t just get involved; they often take center stage. That’s precisely why wealth managers, advisory firms, and family offices are recognizing what a critical role emotional intelligence, also known as EQ, plays in helping clients successfully navigate their financial lives.
Psychologists define EQ as the ability to identify, control, and manage one’s emotions. Those with a high level of EQ are able to effectively identify the emotions they’re feeling, manage those emotions, and use that self-awareness to solve complex problems. Of course, that’s easier said than done when it comes to making decisions about how to invest your nest egg or where to purchase a home.
The good news for investors is that many advisory firms are waking up to how EQ can help them better serve their clients. Although firms have always done their best to make clients feel at ease, the next generation of firms will take a proactive approach to EQ, building it into their services and business models. Just as technology has transformed wealth management in recent years, EQ has the potential to equally shape the wealth management landscape in the future.
Coping with Commoditization
Technological and financial innovation have caused a dilemma of commoditization for many wealth management and advisory firms. With the rise of electronically traded funds and other democratized products and services that traditionally required a human advisor, many investors are asking themselves, “Why do I even need a wealth manager?” This new breed of rewired investor has a DIY mentality and won’t pay for an advisory firm, as they don’t see a ton of value in it.
Commoditization is exactly why many firms are recognizing the importance of emphasizing EQ in their businesses. Sure, someone can manage their own ETFs, rebalance their own portfolio, and use TurboTax to file their own taxes. But these products don’t help people through stressful major life decisions. Products are incapable of feeling empathy. That’s why many legacy firms, as well as startups, are beginning to explore how they can leverage EQ in their businesses.
Coaching Clients In EQ
The methodologies, strategies and tactics that firms and advisories develop for “coaching up” their clients’ EQ form the cornerstone of how EQ will shape the future of wealth management. This goes beyond consulting with clients during a one-off major financial decision. Firms will need to use EQ on an ongoing basis to equip investors with the knowledge and skills they need to make financial decisions on their own.
That’s not to say that firms will be completely out of the picture. However, they will no longer be there as a crutch to lean on. Instead, advisors will work in conjunction with empowered, informed clients to help manage their emotional state through their biggest financial decisions and challenges.
Everyone has unique emotional strengths, weakness, and blind spots when it comes to making financial decisions. We call this your avatar. By working with clients to better identify their avatar, they stand a better chance of managing and applying their emotions when demanding situations arise.
However, the challenge for firms won’t just be coaching their clients in EQ. Instead, the challenge will be coaching their advisors on how to coach EQ.
Integrating EQ With Technology
Technology is touching virtually every aspect of firms and advisories, and how they approach EQ will be no different. Although there are fantastic benefits to using robo-advisors and financial management apps, those technologies alone aren’t sufficient enough to raise investors’ EQ. That being said, human advisors can’t afford to rest on their laurels. Firms are at the do or die stage when it comes to implementing technology, so any EQ strategy will need to be technologically enabled on some level.
Some firms are already merging artificial intelligence software and machine learning with EQ. AI systems can analyze online interactions and behaviors and provide a human advisor with insights about a client’s emotional state and tendencies. If an AI system knows a client’s Avatar or emotional profile, it might even be able to predict how the client will feel about a major life financial event and send automated, proactive communications to address the client’s emotional state.
Advisories, firms and especially family offices are increasingly turning towards EQ as a way to both stave off commoditization and democratize “white glove” service and coaching that is typically reserved for ultra-high-net worth individuals. Firms should recognize that although investors are embracing technology at a rapid rate, they’ll still turn to trusted human advisors. And human advisors, empowered by technology, will help investors remain calm throughout their financial journey.
David Miller, CFP, is CEO of PeachCap. He believes in making an impact wherever he can and supporting organizations that further the betterment of society. David is a progressive thought leader in the financial services industry, where he has been an integral connector in helping the industry bridge generational disconnect. David may be contacted at firstname.lastname@example.org.
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