I have recently made probably the third ‘big’ move in my 23 year career and looking back at these defining moments so much has been about character. Maybe more subconsciously earlier in my career, but definitely consciously recently. Decisions like these are always down to character whether it be of the organisation, the boss, the team, the people interviewing, or your own. The same can be said of successful adviser client relationships. Is there a meeting of minds, do they understand me and do I understand their requirements? If the answer is no, then it is unlikely there will be a long-term relationship that can withstand the ups and downs of long-term investing.
Judging character in many ways can seem simple. There are many studies that show we make up our minds on someone within 11 seconds of meeting them, whether this is over drinks at a reception or something as important as an interview. If you make a successful first impression and become friends or get the job, you can then spend years trying to dispel some of these impressions made in seconds. However, how many times has someone surprised us by mentioning something we didn’t expect or done something you didn’t think they had in them? I’d known my wife for about 15 years when one day on holiday in the alps she decided to jump off the highest local mountain, over 4000 ft, by way of trying paragliding. This was left field in the extreme for my ironically nick named ‘mountain goat’ due to her lack of natural ability to cross the rock pools of a Cornish beach in any controlled and elegant manner. If someone so close to us can still surprise us after 15 years of daily contact how can we ever expect to know a client’s motivations or feelings about investing in a couple of hours?
We can also consider other influences on characteristics such as national or regional influences or possibly are these stereotypes? Earlier in my career I had the luck to manage a global team with direct reports across Europe and Asia and responsibility for delivering projects in many different countries, working with people of all nationalities. Now, in terms of my characteristics I should point out I am from Yorkshire, where we know the difference between a spade and a shovel and are rather fond of pointing out that a spade is a spade. I doubt very much I would have managed to get very far and delivered very much in the years I ran that team if I hadn’t modified my natural characteristics and responded to others. What made the job for me was negotiating these different characteristics whilst still trying to get the same thing done. Having debates in France on how many different ways something could possibly be done, to being challenged in Singapore about what specifically was required to do the job. It’s the same when I decided to leave London and further my career regionally. I was very fortunate to be offered almost any area of the UK to work. Going home to Yorkshire felt like going backwards, not because of the dark satanic mills, but emotionally I needed to go somewhere new. I moved to the Bristol area, the South West, known for its relaxed view on life and its similar views on money as Yorkshire.
These thoughts about character can be aligned in many ways to ‘behavioural finance’. This topic alone fills book after book but as well as the theoretical side of behavioural finance in investment management there is the personal aspect to it. What are your investment characteristics? Do you favour property because it is a tangible asset you can see, touch and feel? Do you invest more in your home market because you think you understand it better? Do you see a buying opportunity when markets suffer set backs or do you sit at home thinking about selling as you can’t face seeing 15% wiped off your personal balance sheet? Does your adviser know this about you? Do they communicate in a way that recognises your personal investment character? There is nothing more damaging to an adviser / client relationship than misreading these characteristics. When the market has fallen 15% or more, as it has in recent months, calling a client to suggest this represents a great opportunity to add to their long- term portfolio if they are sitting at home considering selling because they are worried this is a sign of something worse to come, really proves you don’t know or understand them.
Some companies are now using these behavioural finance techniques to understand their clients and many good advisers have done it for years by really getting to know their client. Some companies do it in a very process orientated fashion but fail to then match this with bespoke and tailored investment portfolios, others do it more softly by encouraging clients and advisers to have more meaningful discussions than what risk profile are you. Whatever you do make sure your adviser understands you, what motivates you and most importantly why you are investing, then when market turbulence affects us there will be a narrative for it, guidance as how to deal with it and a plan that isn’t derailed by it.