Financial Advisers Seek to Inject a More Human Element

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Financial Advisers Seek to Inject a More Human Element - NYTimes.com
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YOUR MONEY
Financial Advisers Seek to Inject a More Human
Element
MARCH 20, 2015
Wealth Matters
By PAUL SULLIVAN
BREAK your financial life into chapters. Assign a high point, a low point and a
turning point to each chapter. What’s the story and what stands out?
It sounds like a party game. But it was a survey created by Barnaby B.
Riedel, chief strategist of Riedel Strategy, a social science-based research firm,
that yielded some unexpected but important insights into how money and
investments fit into a person’s overall financial life.
Mr. Riedel undertook a six-month study completed last month on behalf of
United Capital, a large, registered investment adviser. It required him to have
discussions lasting an hour or two with 30 couples. Those sessions were followed
by another series of conversations with an additional 200 couples to check the
results from the first group.
“We wanted to isolate the most meaningful moments in a person’s life,” he
said.
One of the striking findings was that people rarely mentioned investment
decisions among the most important events in their lives. What did stand out,
even decades later, were moments when they made tough choices, often around
spending and working, he said.
Adviser firms, large and small, independent and connected to large brokerage
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firms, are trying to harness research like Mr. Riedel’s to find better ways to
service — and let’s be honest, attract and retain — affluent clients. Some are
focused on clients in their 40s and 50s who can still make changes to their financial
lives; others are trying to talk directly to some of the 10,000 baby boomers
turning 65 each day.
Driving it all is a desire to be the firm that can address in some meaningful
way the anxiety investors face around money. A recent Legg Mason study found
that investors spend 80 minutes a day thinking or worrying about money, which
adds up to 20 full days a year. A subset of this group spent two to three hours a
day worrying about money, or 730 to 1,095 hours a year.
(The top three concerns, the study found, were an illness that would use up
their savings, outliving their money or seeing inflation erode the value of their
savings.)
The subjects in Mr. Riedel’s survey had investable assets greater than
$500,000 and also had financial dependents.
“People seek financial guidance when they have someone else to worry
about,” he said. “Everyone had to meet certain demographic criteria, but also
more subjective criteria. We wanted people who were not just do-it-yourselfers.
We wanted people who were pretty high on the help-seeker scale.”
At the start of the project, he said, he discarded the traditional life cycle
financial planning model, with its three phases: accumulation of wealth, followed
by the protection of it in the middle years and then the distribution of it later in
life. “That method says life is composed of fairly predictable stages, and you just
have to match guidance to that phase,” he said.
In an effort to uncover a more realistic pattern, he used techniques of
narrative psychology, asking the participants about the highs, lows and turning
points in their financial lives.
By assigning certain codes to their answers, he was able to come up with four
categories that better captured the stages of a person’s financial existence —
working, spending, saving and investing.
“The traditional model says a financial life is about saving and investing, but
when people talk about their financial lives they talk about working and spending,”
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he said. “It accounted for 90 percent of what we heard. Working and spending
provide the drama of our lives.”
Crucial, though, were what people labeled the turning points. They were
almost all about trade-offs in life. Do you go to graduate school, and if so do you go
to the top program or the one closer to home? Do you start your own business
later in life or stay with the security of the job you’ve held for decades?
“The big ‘aha!’ moment for us was that a financial life really isn’t about
money,” Mr. Riedel said. “It’s about people struggling to be the best version of
themselves, to live a life they can feel proud to have led. Sometimes that involves
making a hard decision to make less money.”
Joe Duran, the chief executive of United Capital, said he was using the survey
findings to change the focus of the firm and its branding to “financial life
management.”
“Every single financial decision is either moving you toward or away from
your ideal life,” he said. “To me, that’s a fascinating idea. People said, ‘Am I going
to do the things that I want to make me happy, or am I going to go after money?’
Your ideal self and your financial self are often at war.”
The trade-offs are time, money and energy. As Mr. Duran sees it, you can’t
get more time, and your energy has to be replenished when it is depleted. How
money is used is the bridge between the two.
“Money lets you get more time — you can get more babysitting; you can get a
driver, to be more efficient. You can at least expand your uses of time,” he said.
“But when you make those trade-offs, one way or another you’ll never forget it.”
Last summer, Bank of America Merrill Lynch started a program it called
Merrill Lynch Clear to help people in or approaching retirement. It focused on
seven areas: health, home, family, finance, giving, work and leisure.
To develop the program, Merrill also asked people what they cared about.
“They never said words like beta or alpha,” said David Tyrie, head of retirement
and personal wealth solutions at Bank of America Merrill Lynch. “They were
talking about family and giving and wealth and home. So we said, ‘Wait a second,
how do we engage them in a dialogue of what their goals are?’ ”
As part of its “advice beyond investing” campaign, UBS Wealth Management
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is beginning a financial education program next month that will work with clients
and their children from elementary school to the early professional years.
“When we ask our clients about what they’re thinking, the financial stuff is at
the bottom,” said Judy Spalthoff, head of client development at UBS Wealth
Management. “They’re thinking about their family and their legacy. We’re trying
to be a thoughtful firm and say this is what they’re thinking about.”
At the most basic level, the push to change the adviser-client relationship by
these very different firms makes sense. There are robo-advisers and low-cost
brokerages that can strip away most of the costs from investing money.
But the question is, How do firms adopt this new way, and can clients trust it?
This advice, after all, is going to make the difference in someone’s financial life. Yet
it is being delivered by an adviser who may not be able to go beyond investment
analysis.
“Candidly, a lot of advisers are more engineering-, math-focused and they get
uncomfortable with these discussions,” Mr. Duran said. “We have a lot of advisers
who think we’re in the investment business. We’re in the life business. To have
these facts is incredibly affirming.”
Mr. Tyrie of Merrill said getting all of the firm’s 14,000 advisers to strike the
right note with clients would be challenging. “We’re not pretending this is solving
world hunger,” he said. “We’re saying this is a better way to engage people.”
And to help both sides of the discussion, the firm has divided the process into
steps: understanding priorities, setting up goals and then tracking both to make
sure they’re in alignment.
Knowing this is how firms are approaching them, clients need to find advisers
with whom they can communicate. Otherwise, they’re not only wasting the money
they pay in fees; they’re missing the opportunities to improve their financial lives.
“The marketplace has realized that people are not better off if they do
slightly better than the S.&P. 500 and make stupid life choices,” Mr. Duran said.
“What you see now with what we and other firms are doing is how do you make
consumers aware of their life choices. The things you look back on are when you
couldn’t have it all.”
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A version of this article appears in print on March 21, 2015, on page B4 of the New York edition with
the headline: Advisers Who See Themselves in the Life Business.
© 2015 The New York Times Company
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