The second mistake is to invert the pyramid with our clients and put happiness/performance at Level 1, the basis for the relationship. Performance is ever changing and beyond our (complete) control. It is a poor foundation upon which to build. Also, while a happy client is a good thing, that happiness will not get the chance to occur, nor last very long in the absence of the more basic needs at Levels 1-3 being met.
Level 5: Purpose
There is a concept in mountaineering called the “false summit.” It occurs when a climber has reached what he/she believes is the top of the mountain—only to find that there is a higher point that was previously unseen. Enter Level 5: Purpose.
Often investors accumulate wealth, lead lives of plenty, and encounter a puzzling question: “Now what?” or perhaps even, “So what?” Happiness is a desirable state but does not encompass a total sense of fulfillment. That comes not from contentment, but from using one’s investment/returns for something more meaningful and perhaps eternal. Level 5 is beyond the behavioral and even the emotional; many would describe it as spiritual. Getting to Level 5 means having conversations about meaning and our ultimate purpose in this world. People’s sources of self-fulfillment differs, but for most it means using their wealth for the benefit of others.
Getting to/meeting the client’s needs at Level 5 is something psychologists strive for with their clients, but rarely accomplish. Great financial advisors do this on a regular basis. It is one of the reasons I have so much respect for the profession.
Summary
It is worth revisiting one of the great truths about investing; all investing decisions are attempts to meet emotional/psychological needs. The Investor Hierarchy of Needs is a useful model and guide for helping clients do so. Part of its usefulness is its simplicity; all deficits in client satisfaction can be traced to a problem at some level of the pyramid. The task is to identify the problem at the lowest level it appears, and work your way up.
When you help your clients ascend the pyramid of investor needs, an additional realization will set in; the client is not alone. You are right there with them.
Dr. Frank Murtha has worked as a speaker, writer and behavioral finance consultant for 18 years. He is the co-founder of MarketPsych LLC and a principal at Marketpsych Insights. His book, MarketPsych: How to Manage Fear and Build Your Investor Identity, was named one of three “Best Financial Books of the Year” by Kiplinger’s Personal Finance in 2010. He may be reached at [email protected].