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Building Your Own Piece of the Future – Client Profiling

Scott's Column | , ,

“You better start swimmin’ or you’ll sink like a stone for the times they are a changin’.” –Bob Dylan

Last time we talked about how technology is changing the game for advisors.

To sum up, in the future, the traditional cornerstones of your value proposition like investment management, portfolio rebalancing, tax loss harvesting, and financial planning will be automated and widely available online.  Because of this, their perceived value in the eyes of your clients will become compressed.  Then what?  How will you attract and keep clients while maintaining current levels of revenue and profitability?

Use your humanness to set yourself apart, build trust, and establish a lasting bond with your clients.  Hopefully, you can come up many ideas of your own about how to accomplish this.  In the meantime, here is one suggestion to get you started.

Client Profiling

Most firms do a miserable job of client profiling.  This isn’t necessarily their fault.  Most advisors are not trained psychologists and most tools for client profiling lack a firm scientific foundation.

This creates a number of opportunities for the wise advisor.  First, improving your capabilities in the area of client profiling provides a concrete basis for differentiating your firm from others.

Second, a comprehensive client profiling process puts the focus on clients and makes them, rather than their portfolios, the center of attention.  Creating solutions based on each client’s unique characteristics makes the process more personal and enhances the client’s experience.

Third, a well-designed profiling process can improve client retention.  Research shows that individuals have a wide range of behavioral characteristics.  Two clients with similar financial goals may need very different portfolios to accommodate variations in how they are wired.

The differences are multi-dimensional.  Clients differ in their willingness to assume risk.  They differ in their reactions to losses.  They differ in their perceptions of where risk lies.  They differ in their abilities to tolerate uncertainty.

The bottom line is, clients are complicated.  But understanding a client’s behavioral make-up allows advisors to create portfolios that clients are more likely to stick with long-term.  This is good for clients and helps advisors retain clients over the long journey towards their goals.

Client profiling also allows advisors to add value over time.  A client’s behavioral profile is not static.  It can change through the years.  Thus, client profiling should be an iterative process that requires ongoing involvement and monitoring by an advisor.

Further, client profiling is an activity that is hard to fully automate.  In part, because behavioral profiling is not an exact science.  The profiling process can identify behavioral characteristics and flag issues that need attention.  But there is no automated tool that can give a precise answer about how a client’s assets should be invested.  Only through collaboration between client and advisor can an appropriate course be determined.

Advisors who develop a scientific process for profiling their clients and resolving any issues identified in that process can improve client outcomes and deliver value on a continuing basis.  There are tools available, including some cool new ones, that can help you make understanding your clients’ behavioral characteristic a focus of your business.

Stay tuned next month as we explore another idea about how advisors can add value in the world of tomorrow.