When Jim King sits down with clients for the first time, he hands them the usual forms and risk-assessment questionnaires — and a Myers-Briggs personality test, the same one used by top corporations to size up potential hires. “I've found it useful for clients, to get an idea of their decision-making process,” says King, owner of JP King & Associates, an RIA firm in Walnut Creek, Calif. “And it helps me tailor my presentation of information about financial matters to that client.”
Myers-Briggs is among an array of tools that reps and financial advisors are adopting to get closer to their customers. Just as consumer-marketing companies have used a battery of tests and surveys to understand what motivates buyers of toothpaste and Volkswagens, financial advisors are learning that they can create a more productive relationship with clients when they understand the personality on the other side of the desk. “It's about understanding their emotional needs in addition to their financial ones,” says Jerry Miller, COO of Merrill Lynch Investment Managers (MLIM) Global Proprietary, which has started using a personality test to help brokers head off common investing mistakes by clients.
King's Myers-Briggs test lets him know where a client falls on a set of four personality scales adapted from the work of psychiatrist Carl Jung — Extroversion/Introversion, Sensing/ Intuition, Thinking/Feeling and Judging/Perceiving. Someone who scores high as a senser (75 percent of the population) is a practical type — one who tends to be detail-oriented, focused on what actually occurred in the past and what is happening now. With a senser, King might present information piecemeal, suggesting products that the client is familiar with and whose performance is well known — things like index funds, perhaps. Gradually, he can move these clients into less familiar territory, such as foreign funds. An “intuitive,” on the other hand, embraces whole concepts more readily and is less fearful of the unknown. For an intuitive, King might introduce an overall diversification early in the process.
Kathleen Roth, a financial advisor with Wealth Management Group in Rochester, N.Y. started using Myers-Briggs last year and likes the results. She cites this dramatic example. She had a 59-year-old client who was working in the finance department of a large corporation and who wanted to talk about when he could retire. The Myers-Briggs test showed that the man was a “duty fulfiller” — a traditional person who is very involved with family and community and who resists change. Turned out, he was miserable in his job; his work left him little opportunity for the kind of community involvement he craved. In the end, Roth and the client discussed pushing back his retirement age and looking for less lucrative but more simpatico work, a sort of semiretirement scenario. For clients, the personality assessment, says Roth, “changes the way they look at how they use time and money.”
For King, the real value of the test is not in fine-tuning investment programs. Rather, the process is about creating the best possible relationship with each client. That includes knowing where the advisor stands personality-wise. “I share my psychological makeup or preferences with them, too, and it makes for a more personal kind of relationship,” he says. “Financial advice is really about the people and their feelings and not just about the numbers.”
Of course, good reps are always assessing their clients' personalities. It's something successful salespeople do intuitively. But formalizing the process can help in several ways. “Much of this is simply backing intuitiveness with science,” Miller says. “Advisors will realize that having a scientific process for these discussions will make the client more comfortable.”
Indeed, one of the key benefits of sharing the results of a personality assessment is building trust with a client, which leads to a more honest dialogue. Clients may squirm under the microscope, but they get the message that you are not treating them as just another pile of assets. Secondly, by taking the tests themselves, reps can gain insight into their own personalities and learn how to temper their communication styles to be more effective with different types of clients. Finally, in broad terms, personality testing can help advisors narrow down likely investment choices for each type of client.
In fact, fans of personality testing like to point out how much more practical information they glean from these assessments than from the standard risk-tolerance tests that firms mandate. “Risk-reward profiles don't really work,” says investment manager Ken Fisher, owner of Fisher Investments in Woodside, Calif. Beyond pinning down a risk profile — and helping firms defend against charges of selling inappropriate investments — those questionnaires yield little insight into the customer's true desires. “It's very unclear that the client is educated to answer those questionnaires correctly. The average client doesn't really understand what the words really mean.”
That's because risk tolerance tests assume that clients arrive with a grasp of Modern Portfolio Theory. Behavioral finance guru Meir Statman, the Glen Klimek professor of finance at Santa Clara University, points out that people don't think of their portfolio as a whole. They think of their assets as divided into different “mental accounts” or pockets, depending on where the money came from and what they're saving it for. In a 401(k) pocket, for example, a client will likely be much more conservative than with the vacation-savings account.
“In some pockets, they're very risk-averse, in others, they may be risk-seeking,” says Statman. “That's why the same people who buy insurance also buy lottery tickets.” In short, people don't think in terms of Modern Portfolio Theory. People are schemers and dreamers, jealous and generous, insecure and overconfident. They are human.
A Matter of Temperament
Personality profiles, says Statman, simply help identify which kind of human a client is, so an advisor can take the right approach and establish a bond. After that, clients can start to talk about their real financial goals, like competing with their brother-in-law, he says. In a recent article published in The Journal of Investment Consulting, Statman adapted a personality test, the Keirsey Temperament Sorter, to show some correlation between four temperaments — guardian, artisan, idealist and rational — and investing choices.
Among the results of the research: Guardians and artisans are more inclined to trust an advisor than are sincere idealists and skeptical rationals. Rationals have the highest risk tolerance, hedonistic artisans are least sensitive to the magnitude of risk. Steadfast guardians and idealists will take risk if they are well compensated for it.
Knowing where a client or a prospect comes from emotionally can be a great help in preparing an effective sales pitch. For example, guardians rely on the opinions of authority figures. A rep that knows this can prepare a presentation with plenty of facts and quotes from respected experts. Artisans, who learn by doing, like opportunities to participate in the presentation and ask questions. Idealists, meanwhile, are sincere and nurturing and value highly personalized relationships. Rationalists prefer formal presentations with scholarly language.
Merrill Lynch stumbled on its personality profiling system when it commissioned a study of common investment errors. The data showed a strong correlation between certain personality traits and specific investing errors. Measured investors, for example, have a tendency to hold onto losers too long. The test, says MLIM's Miller, now allow reps to have a much more detailed conversation, based on specific personality types.
How do Merrill advisors use the test? Consider the “reluctant” personality. That type of investor often starts investing too late and invests too little. The rep can predict that such a client will tune out when he starts explaining the details of how to reach the client's ultimate goals. “This is not where they want to spend their time,” says Miller. “Recognize that this is how they're built psychologically.”
For the reluctant personality, it often works to suggest structured programs such as dollar cost averaging and automatic quarterly rebalancing — techniques that put the plan on auto pilot. Reluctants are also candidates for discretionary accounts, where appropriate. “They have a lack of personal involvement in the investment process and are more than willing to delegate,” says Miller.
The “competitive” type on the other hand suffers from overconfidence. Competitives love to trade and are convinced they can beat the market — often on the basis of hot tips. One common mistake they make is letting their portfolio become overconcentrated. “Their enthusiasm can be detrimental when it's left unchecked,” says Miller. “They often need a second set of eyes — someone to challenge their thinking. The advisor can look over their shoulder and act as the voice of reason.”
Speak the Client's Language
For two-and-a-half years, John Nersesian, managing director of Nuveen Wealth Management, has been training reps in a four-way personality assessment called DISC, which has been widely used by human resource departments. DISC is an acronym for four major personality types: aggressive dominants, outgoing influencers, calm steadinessers, and detail-oriented compliants. “In the past, we segmented clients according to asset size. But we've learned that clients with similar assets have different goals and personality traits,” he says. “The advisor who goes deeper and has a better understanding of what motivates their clients will have a more productive relationship with them.”
Nersesian recalls the case of a client — a successful corporate executive — that an advisor approached as a compliant, focusing on nuts-and-bolts tax planning around stock options. But the client seemed to be balking. Why? His assessment showed that he was not the numbers-focused, analytical compliant that the analyst assumed such an exec would be. He was more of an influencer, who focused on interpersonal issues. “If you're focusing on tax analysis with this type of person, then you're missing the mark,” says Nersesian. “You're speaking, say, French when you should be speaking German.”
Krista Sheets, a managing partner at Paragon Resources in Atlanta, a consultant to business professionals, uses the DISC test to help teams of advisors work together. But she says reps could easily use it on their clients or on themselves to facilitate communication with clients since each of the four types has a way they need to be spoken to. Reps tend to fall into the dominant/influencer grouping. They should be aware how that affects their relationship with clients. If you're a dominant and your client is, too, something has to give. “With dominants, you need to let the prospect feel that he or she is in control,” says Sheets. In other words, restrain your impulse to out-dominate these clients. “They will be thinking, ‘Can I trust this person, are they sound enough to deliver what they said they would?’” says Sheets.
On the other hand, influencers likes to be more social and less direct. They want to build a friendship by digressing into personal topics, such as family and vacations. Learning to listen to their digressions and gently bring them back to investing will help build a relationship with such clients. Influencers also put great store in what others think, so it is important to have personal referrals to build a book with these investors.
Compliants, on the other hand, are introverted and reserved. They thrive on data and don't want to get personal. “Make sure you have all the research and the data to back up the information you're presenting them with,” Sheets advises.
Steadies (most people) want the tried-and-true method — products that have performed reliably over the years. With a steady, you may need to slow down, give him time to think through what you say and voice her concerns. “It's important to them to see the process and the philosophy,” says Sheets. “They like reassurances but can see through insincerity.” Above all, they don't like change; if you can win them over, they will be loyal customers.
As with any sales tool, personality testing has its limits and is only one of many techniques a rep a can employ. The tests have their critics, too. “They are a marketing gimmick and they're ridiculous,” says Fisher. He, too, likes to understand what motivates clients, but uses classic behavioral investing studies, which don't rely on clients to answer questions honestly and provide accurate self-assessments. He argues that it's better for advisors to be familiar with behavioral finance to help them understand investors. For example, he says, a client who wears a Rolex is interested in status but isn't likely to admit that. That client will probably be happier with a known, “prestigious” investment manager than an unknown — even an unknown with a better track record.
In fact, according to some critics, a person's “money personality” might be quite different from his or her nonfinancial temperament. Kathleen Gurney, a psychologist with a specialty in test measurement and CEO of Financial Psychology Corp. in Sarasota, Fla., sells an online assessment system called Moneymax, aimed specifically at identifying a client's emotional money triggers and flagging potential problems. She developed the tool because she felt that tests such as DISC did not drill down into an individual's financial personality. “I don't find a positive correlation between what people do in their personal life and what they do with their money,” she says. Another online test, from Financial DNA Resources, in Atlanta and Sydney, Australia, lets advisors determine which of 16 money styles their clients fall into, helping them to adapt their M.O. to suit each type.
Whether it's a Myers-Briggs, a DISC test or an online appraisal, what reps are learning is that it pays to get into their clients heads.
Anne Field and Will Leitch contributed to this article.
WHAT TYPE OF CLIENTS DO YOU HAVE?
The four personality types that make up a DISC assessment.
High Compliant Style
Personality: Task focused/Introverted
Speech Clues: Monotone, slow, direct, concise, deliberate. Asks questions to seek facts and figures. Employs language logically.
Body Clues: Few gestures, low enthusiasm. Walks quickly, but scans environment for obstacles. Leans head on hand, covering chin and mouth. Keeps distance from others.
General Clues: Skeptical, suspicious. Shows little emotion, and is neat, careful, compliant, cautious.
High Dominance Style
Personality: Task focused/Extroverted
Speech Clues: Talks fast and unusually loudly. Direct, blunt, argumentative and self-assured. Answers quickly, and asks specific “what” questions. Takes control of conversations.
Body Clues: Walks fast, sits with arms crossed behind head. Paces, constantly moving. Firm handshake.
General Clues: Demanding, aggressive and challenging. Strong-willed, goal-oriented, restless, seeks win-win opportunities.
High Steadiness Style
Personality: People focused/Introverted
Speech Clues: Great listener. Methodical, soft-spoken and relaxed. Unemotional, reserved and friendly. Asks “how” questions.
Body Clues: Walks deliberately and is moderately cautious. Crosses arms in front of body. Maintains friendly eye contact.
General Clues: Casual, but possessive and stubborn. Patient, predictable, logical and modest. Enjoys teamwork and is cooperative.
High Influencing Style
Personality: People focused/Extroverted
Speech Clues: Chit chats and uses many words to express simple concepts. Enthusiastic, loud and persuasive. Spends more time talking than listening. Optimistic, responds energetically and asks questions about feelings.
Body Clues: Many hand gestures. May meander or bump into things when walking. Smiley and friendly. May have hand in pocket.
General Clues: Emotional and enjoys large groups of people. Disorganized. Resists personal rejection and seeks social recognition. Impulsive and imprecise about the use of time. Fun seeking and spontaneous.
Source: Paragon Resources