Today’s financial advisors have countless resources and the technical intelligence to provide their clients with advice across their wealth and investment portfolios—after all, that’s how robo-advisors made their entry. Yet a huge part of how individuals view their wealth is not practical, but rather psychological, and for advisors to truly serve their clients they must also have the “emotional intelligence” to understand how their clients truly feel and perceive their wealth. Ultimately, for advisors to be indispensable to their clients, they must be able to offer direction not only in ways that grow wealth, but in ways that grow wealth according to a client’s larger goals around their family, health and passions.
The evidence for this rather intangible emotional intelligence came to the fore in our “Why of Wealth” survey, which broke down demographics by age, gender, business ownership and investable assets. We found important differences in how each group viewed wealth, what motivated them to accumulate it, and ultimately, what they intended to do with it. For example, despite what many may think about millennials, they were one of the most giving demographic groups surveyed. Often categorized as overly optimistic and self-serving, millennials ended up feeling the greatest sense of responsibility in using their wealth to give back. As advisors, it’s being conscious of these priorities for our clients that help us satisfy their investment needs as well as the psychological factors driving them—it’s also what makes us stickier with them.
To be sure, it’s not always easy to apply emotional intelligence in our work, as the demands on investment performance can be all-consuming. But as returns become ever more predictable and achievable as aided by technology, it’s the non-numerical insight that will grow in value. By demonstrating and even reminding the client that their financial life is inextricably tied to other drivers of their happiness, such as donations to an alma mater, succession planning for children or management of treasured art collections, the extra layer of advice—albeit complicated to give—can pay off in spades.
A foreseeable pushback to this idea is the argument that advisors are not psychologists. Some will say it’s not our job to understand the motivations but only to achieve the performance. It’s important to make the distinction that that’s not the intention. What I’m calling emotional intelligence is simply meant to help us do our jobs better. In recent years we’ve seen society and client preferences as a whole shift toward valuing qualitative results—including the satisfaction of social responsibility and other non-financial metrics. Building an investment portfolio at its core will follow a similar template and logic for every advisor, thus that portion of our work has become something of a commodity. This is why getting a client to be both financially and emotionally aligned with their portfolios can be a covetable ability.
One of the most important findings from our survey was that the biggest regret for the wealthy was not spending enough time with their families. Unfortunately, a regret is something no one realizes until it’s too late. In this sense, part of an advisor’s emotional intelligence also comes from helping clients decode and decipher their own non-financial needs, and acting as the guiding hand when need be. As a piece of advice, my father once told me “you never try to make a decision at an emotional high or low—you need clarity of vision.” This exemplifies the emotionally intelligent advisor who can predict and influence a client towards clear-minded decisions, and is the only way to take full advantage of the opportunity to create a trust-based relationship with the client involving all aspects of their life.
In the same way that the entire financial services industry has been disrupted, financial advisors can no longer continue to operate as they’ve always been. Not only do unpredictable life events and market downturns affect our clients, so do new technologies and the growing availability of data. Ultimately, it will not be investment performance that distinguishes an advisor from the next one—because so many of us are capable of delivering that—but rather the willingness to expand the parameters of a portfolio to include financial as well as emotional goals.
Exemplifying this intelligence can be as simple as asking the question differently: it’s not about the how, but the why.
David Murphy is head of wealth advisory at Boston Private.