Identifying and helping your high composure clients
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In the final article of this series on the six personality archetypes that people tend to cluster around when it comes to their finances and investments, we look at the high composure (calm) clients. This is the group of clients who will respond with a “that’s markets for you!” when asked how they feel about a portfolio dropping from R 1 million to R 600k in less than 3 months during the 2020 covid-19 crisis.
High composure clients will likely only be comfortable with a decision if they feel that they have done all the research themselves. If you want to support their decision-making process, it needs to be done subtly, by improving the decision-making environment, rather than being prescriptive or reducing their freedom to choose.
To further personalise your communication within your group of high composure clients and be more effective as an advisor, you need to know where your clients rank on the following key differentiating characteristics:
- Composure: How emotional an individual feels when markets are falling
- Desire for guidance: How much an individual wants to make decisions with a professional
- Comparison Tendency: How much an individual will be affected by under-performing the market or peer group even when their net returns are positive
- Confidence: How comfortable an individual feels with making their own investing decisions
- Familiarity preference: How much an individual prefers using familiar investing options
- Financial comfort: How comfortable an individual is with their day-to-day financial situation
Let’s now get to know three high composure clients namely Andre, Amy and Khumalo.
Andre is 51 and in a new relationship, but still lives by himself in his townhouse in Parkhurst, Johannesburg. He holds an MBA from the University of Cape Town Graduate School of Business and works at one of the global management consulting firms, heading up their South African business. Andre just loves investments, especially learning about new opportunities. Through his network, he often gets invited to client events in the financial industry and is a frequent reader of most of the financial publications. Over the years, he has allocated small amounts – when measured as a percentage of his portfolio – to various things like a renewable energy bond issued by Nedbank and an iShares ETF tracking the US Momentum factor and also has an EasyEquities account. Although each of these new ideas are usually less than 2% of his portfolio, added together now sits at more than 30% of his holistic portfolio. The remainder of his portfolio is invested in small selection of excellent “steady eddy” unit trusts that collectively is perfectly in line with the asset allocation his financial needs require. He enjoys discussing investments with you and often asks for referrals to experts to tap into even more knowledge.
Amy is 44 and married with three kids. She has been running her own business selling quality, home-cooked style frozen family meals for more than 10 years. Her business has grown nicely with branches in most major cities in the country but has had some challenging times in the covid-19 pandemic. Business is, however, picking up and trends normalising. Her husband is in property development, her three kids are all in primary school and she has an incredible nanny that helps her with housework and the kids during the day. When she was about 3 years into her career, still working at one of the local food retailers, she went to who was the largest asset manager in SA at the time as a “one stop shop”, to set up a retirement annuity contribution with an annual 5% escalation, invest a lump sum in a low risk fund in case of emergency and set up a monthly contribution to their global equity fund to boost her savings. Amy hasn’t made any changes to this since, but her financial needs has changed materially in the last few years. However, it doesn’t worry her.
Khumalo is 39, single and lives in a two-bedroom apartment in Camps Bay, Cape Town. He studied actuarial science at UCT on a bursary from one of the leading insurers in South Africa, qualified as an actuary when he was 29 and is still working with the same insurance business. He is very brand loyal. For as long as you’ve known him, he has driven an Audi, has always had an Apple iPhone and seems to love local brand FOM too. He is extremely knowledgeable about various elements of the financial industry and only (reluctantly) reaches out to you for specialist or niche advice. He is very pro-active about his portfolio, and the brand loyalty shows up here too! He is a big fan of the Nedgroup Investments Global Equity fund – he really buys into Veritas’s investment style - and frequently adds to this fund, irrespective of the goal for that pocket of money.
Now, can you tell who is who?
Within the high composure group, it can be as simple as recognizing only one or two differentiating characteristics that is exceptionally high or low to identify the settled, secluded and secure archetype.
- A settled client has the least financial comfort within the high composure group, but most likely due to a lack of interest in investments and the admin that goes with it. This lack of interest shows up in all the differentiating characteristics as a neutral position, i.e. they can come across as indifferent.
- A secluded client is very confident and independent in their decision making with very little desire for guidance and advice. Their other stand-out characteristic is having a firm favourite asset manager or fund or product in their portfolio.
- A secure client has a very low preference for familiar investments, to the extent that they are constantly finding something new to invest in. Using the chart below which illustrates where each archetype ranks from high to low on the differentiating characteristics, can you place Andre, Amy and Khumalo?
How did you do?
Amy is a settled client. You will find that the settled client has the highest desire for guidance and the lowest composure and confidence within your group of calm, high composure clients. They are comfortable with investing, but almost bored by it and want to hand over the hard work to you. Settled clients are likely to follow a ‘buy and hold’ strategy and fall into the trap of not adjusting their investment portfolio to keep up with their personal life. For example, they are unlikely to have increased their retirement savings at the same rate as their salary growth. Settled clients need you to make it easy for them to keep up. They need you to do the research, prepare the admin and make it as easy as possible for them to make - and sign off - all the decisions in one meeting. They really need you to make the admin easy.
Khumalo is a secluded client. Secluded clients are confident and have a very high familiarity preference, or bias to one specific asset manager or fund in the investment industry. Secluded clients are independent and protective over their portfolio but will engage with you on niche or specialist knowledge. Their biggest weakness will be their familiarity bias. They are likely to keep adding to their firm favourite, in many instances without you even knowing, and risk ending up with a very concentrated portfolio – or, a portfolio that has deviated materially from the planned, suitable asset allocation and risk profile. To help your secluded client stick to plan, ensure regular engagement to avoid neglecting important investment maintenance. In these sessions a ‘no nonsense’ approach is critical. A secluded client will not enjoy a sales pitch. Be prepared and specific and importantly, clearly illustrate:
- the look-through of their portfolio to highlight concentration risks;
- what their asset allocation looks like compared to his plan to highlight deviations;
- the benefit of diversification across managers and asset classes, and the risks of having all your eggs in one basket.
Andre is a secure client. Secure clients will display the highest level of composure of all your clients, in other words will be the most comfortable with volatility and bear markets. They have a very high degree of financial comfort, but also a high tendency to compare their portfolio to other things available in the market. As a result, your secure client’s weakness is the temptation to keep investing in new things. Although they are unlikely to chase fads like crypto-currency, but rather things like region specific tracker funds or hedge funds, over time their portfolio may end up with various small unplanned allocations. If your secure client’s weakness is not managed their portfolio will not stay in line with the plan. For a client like Andre, it is important to
- illustrate the lack of impact on the overall portfolio of a small allocation of say 1% to 2%,
- illustrate the return required from each of these small allocations to have an impact,
- illustrate how the various small allocations combined detracts from the plan
- rather create a special “side project” of around 5% of the holistic portfolio for Amy to ‘play’ with, while managing the majority of her assets according to the agreed upon, suitable plan.
To understand more about the six personality archetypes identified by the Nedgroup Investments research, read the full report here. For information on how to access the financial planning tools available on the Nedgroup Investments website or for a copy of the Carl Richards collection of sketches, contact your relationship manager or log into your online profile.