Today on ThinkSmart with TMFG Senior Financial Advisors Rob McClelland and Mike Connon discuss the characteristics of 5 types of investor personas and how each fare in the marketplace. Find out which one you might be.
What Type of Investor Are You?
Success Rate of Types of Investors
…and much more
Hello, this is Rob and Mike from The McClelland Financial Group of Assante Capital Management and this is Think Smart with TMFG.
Today on Think Smart with TMFG, Mike and I are going to be discussing the five different personas of clients in today’s marketplace. Mike, today you and I are working from our northern office for the first time.
Yeah, the view is spectacular.
Weather is a little inclement, but the view is great. So, Mike, today, you and I are going to be discussing five different types of clients. I came across this study, I thought it was very interesting. I thought it was relevant to the types of clients that we work with, and so let’s review them. Maybe we’ll start off with the study itself.
This was the study conducted by a US company called Northern Trust Asset Managers, and they looked at clients who had anywhere from $250,000 to $30 million dollars in investible assets. They conducted in-depth interviews with those clients, and they also did an online survey.
Interestingly enough, the study found that 63% of these investors based their initial investment decision with an advisor on an amount that felt comfortable for them, as opposed to a specific strategy. Maybe they said, “Well, why don’t you start with $300,000 or $500,000,” as opposed to, “I’d like you to manage my entire portfolio.”
Have you had that situation before?
We’ve found that many times. And remember we had a study with a coach, Dan Sullivan, who is a great coach and taught us a lot about how the mind works, and people don’t always make financial and investments decisions based on thinking things out through the numbers. It’s more of a gut feeling, people tend to really react on their guts, because when people are making emotional decisions, they have trouble dealing with numbers at that time. So they’ll have something that feels comfortable with them, and they’ll just do that.
So, it is quite normal and I guess the hope is always that eventually they feel more comfortable with time, and their gut tells them to go and consolidate and use one person to run everything.
I would agree, I would agree. I think it’s a trickier way to start a relationship, because you always feel like you are being compared to something else. When you’re putting a long-term strategy in place, sometimes the performance is great to begin with, and there’s no concerns. Other times, you hit a bad market, and start date bias has a lot to do with it. I always struggle with those types of starts.
The other thing that was common among all investors was that they need to feel safe and comfortable in terms of making those decisions with the advisors. And so, that’s the most important thing. Just because the advisor had a good strategy didn’t mean that the client was going to give them all their money day one.
So, let’s get to some of the results. There were five different types of clients. The first group, we talk about that, Mike. Tell me what they’re about, and they make up, I think, 40%?
40%, they’re called the verifiers. This is someone who generally trusts the industry, as likely they have some investment expertise. So these are the people who have invested their veterans they invest in. They understand how the markets work, they have a good idea and they can really, once they find out someone they should trust, they usually put their trust in them.
Verifiers are open to consolidating their assets with an advisor, but once they have a trust with him over time and he can demonstrate some expertise and personal connection with them. So this is probably our favorite type of client that we’ve had, and I would say probably about 90% of our clients would fall into this category after time with meeting with us. And it makes for a better relationship and it makes for more successful clients too.
I guess the thing that I find is, you tailor the advice to the individual client as you always do, and for the most part, this group take that advice and you implement the strategy, whatever it may be.
And they don’t go blind either. Again, it’s a verifier, they’re not doing this as a blind, I’m just going to take all my money and give it to anyone who comes up in the streets. They do their research and they understand what the concepts are, and they need to really trust the person too.
Definitely. So the second category is called the simplifier. And this, again, pretty big part of the marketplace, 28% of the marketplace. These individuals prefer having a single advisor to control their finances. They tend to think of their investment portfolio as a lump sum, even though it may be an RSP, an open account, or a TFSA. They look at it as one lump sum. And so, maybe they have a million or $2 million worth of investment assets. They don’t break it into compartments.
They tend to have less investment knowledge, and they typically defer to the advisors judgment. So they’re very trusting, but they don’t necessarily need all the details, they won’t challenge you on a lot of things, but they take your advice, they’ve come to a professional, and the advice gets implemented. Very easy clients to work with. Certainly you don’t need to explain nearly as much, although we always do, but very friendly clients to work with.
So I guess there’s almost a crossover between the two, but the verifier does more research, essentially. They want to make sure they understand everything fully. The simplifier just wants more of a big picture on what’s going on rather than to understand every little piece of it.
Definitely. I think the difference would be, if you were looking with a simplifier, you might be able to explain asset allocation to them in 10 minutes, whereas the verifier might want to talk about asset allocation for half an hour, 45 minutes.
I’ll correct myself. I think more of our clients are simplifiers than verifiers. So, we’re probably about 50, 60% simplifiers, rather than verifiers, but they each work very well.
So then we go to the next group. So these are called the collectors. So what do they collect, Mike?
Well, they collect advisors.
We’ve had a few of those.
So they tend to work with two, maybe three advisors.
They make up about 22% of the group of potential clients that you have. They believe that by spreading their assets across multiple advisors, it helps to mitigate investment risk and gather different perspectives. What’s your experience with that?
I always try to describe it to people as if you went to go out to dinner and you wanted a balanced diet, we always talk about a balanced diet, and you decided you’re going to diversify your eating. So you go to The Keg one night and you have the steak, and you go to Kelsey’s one night and you have a steak, and you go to the Octagon another night and have a steak, you really don’t have a balanced diet, do you?
You’ve made it to three different places, but your heart’s going to be pounded at the end of it from all the fat you’re eating. So, that’s what tends to happen with these people as they collect advisors, everyone has these strategies they’re putting in place, no one’s communicating with each other. The biggest penalty you pay is taxes.
When we run a portfolio, we can run in a very tax effective manner. When you start to spread your portfolio amongst three or four people together, and each of them doesn’t know, it’s no one’s fault, they can all be good advisors. But if you only have control of one piece of it, it’s very difficult to manage the tax situations.
I mentioned earlier that you sometimes feel like you’re in a competitive race. And that’s what it feels like when there’s multiple advisors, and you know there’s going to be periods of time where that other advisor’s strategy is outperforming yours. And so sometimes it can take even up to 10 years to figure out which is a better strategy. In the meantime, the client has typically been under diversified or over diversified in some categories, they’ve paid more in fees, they’ve had to do three times as many meetings to get very similar results.
It’s tricky because competition is a good thing. We always know we led the competition, but sometimes the competition causes bad results in investors, because there’s a lot of patience involved in getting the results you want. We saw large examples of this in the last year and a half with a lot of Canadian equity managers. The Canadian equity managers were trying to compete with the US equity managers in many cases, and they went from having all Canadian equities to trying to get US equities in them. In some cases up to 50% US equities in their portfolios, because they want to get all those high tech returns that’s going on in the US. And all of a sudden, the last year and a half, what we saw is US fell apart. Oil and gas did very well, and these managers were all left out to dry as more about them, not doing their job of providing Canadian equity allocation, they were going and trying to beat the markets.
What I think is interesting about the collectors, they talk about what their pain point is. Their pain point is the complexity across all their different accounts, how complex their life is. And yet they’re the ones that have asked for that and created it.
Next group, the protector. Not a big part of the marketplace, only about 10%. Mike, what do we know about protectors?
They generally have substantial assets, but reluctant to cede it in control to an advisor, and prefer more of it the do-it-yourself type of approach. So they really don’t trust anyone. They want to hold everything in as conservative as they can, and they want to make sure they’re in control of everything.
I also find they tend to be a little risk adverse, they tend to be a little more conservative. Everything scares them a little bit. They will sometimes dictate how the account should be invested. So, we’ve had some as clients over the years and I find it’s not an enjoyable relationship, because you’re only getting to select three quarters of the investments.
The last group, smaller group still, they’re called the competitor. About 7% of the marketplace, they’re highly outcome orientated and prefer to have multiple advisors in order to compare the performance. So essentially they want multiple advisors, they want to see who’s winning the race and they’ll give the money to the person who’s winning the race. What’s wrong with that?
Well, we like this idea, buy low and so high. If you’re always giving the money to the person that’s ahead, you know, if we go back a year and a half or two years ago, anyone who had a growth strategy would’ve been ahead. And you get the money in the middle of a growth marketplace, next thing comes a value marketplace. So you’re always buying high, and it’s just a bad strategy, we’ve known that over time.
What’s interesting to me is you get to know a lot of advisors in the industry, especially after the number of years you and I have been in it. And what we’ve found is that the key to success is sticking with the strategy. If you keep changing strategies, that’s when you get under performance. We happen to have a factor based strategy that’s worked very well, but I know advisors who’ve used just a straight value strategy or some that are more market indexers, and as long as they stick with that strategy, they tend to do really well.
Consistency is the key to success. I mean, any advisor who’s been in this business for 20 or 30 years, they have some consistency in their way of doing things. When we see an advisor’s portfolio, we can tell poor advisor from a good advisor. Generally speaking, poor advisor who have 20 different strategies for all the different clients, they don’t have any consistent strategy. Every time they meet someone, they put into a new strategy. Soon as you see that in a practice, you know the advisor can never be successful.
That brings us to the end of another week. Thank you for joining us. This is Rob and Mike with Think Smart from The McClelland Financial Group of Assante Capital Management, reminding you to live the life that makes you happy.
Assante Capital Management (12:19):
You’ve been listening to The McClelland Financial Group of Assante Capital Management Limited. Assante Capital Management Limited is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. Insurance products and services are provided through Assante Estate And Insurance Services Incorporated. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources. However, no warranty can be made as to its accuracy or completeness. Before acting on any of the previous information. Please make sure to see a professional advisor for individual financial advice based on your personal circumstances. The opinions expressed are those of the authors and not necessarily those of Assante Estate Management Limited.