Financial advisors need to learn to work with clients, who, at their core, are irrational human beings, says Christopher M. White, a wealth manager and author.
White, author of “Working with the Emotional Investor: Financial Psychology for Wealth Managers,” warns that if advisors do not know what kind of person they are dealing with, they cannot effectively help the client, who may be making decisions based on emotion, not logic.
People can be divided into three groups, says White, who is a senior portfolio manager at Hemenway Trust Co. in Boston. (The opinions expressed in the book are those of the author and not of Hemenway Trust Co,, White says.) He says clients can be divided into three groups: the fixer, the protector and the survivor. Each approaches investing in a unique way and needs something different from an advisor.
For instance, White has a client, Tony, he has worked with for nearly 20 years who is the fixer type. He needs to win and he needs to be in control. In the mid-1990s, Tony was invested in bonds, was losing money and was berating his advisor on a daily basis.
White put together a portfolio that invested him in equities. “That was the only way he was going to earn money at the time. It was important for me to know I was dealing with a fixer who was results oriented and to show him how he could begin earning returns immediately.”
A fixer is willing to take risks, and has to be shielded from taking too much risk, he says.
The protector, on the other hand, is much more conservative and sees threats everywhere to himself and to others. The protector looks ahead and plans. They can sometimes feel powerless. Madelyn, a client of White’s, fits the category. She was so afraid her husband was not paying enough attention to their wealth that she began transferring money from his accounts to her's because she thought she could handle the money better.
Her husband, Lucas, on the other hand, is a survivor and does not pay a whole lot of attention to money matters.
“Luckily, when his wife started transferring money, Lucas took it as a wake-up call and decided he should be paying more attention to what his wife was trying to tell him,” White says. “Survivors are more random in their thinking patterns, which makes them more creative. Painters and writers are often survivor types.
“For survivors, my job is to let them make the decisions, but I provide the framework and discipline for their investments.”