How to Give Clients What They Really Want

by Jane Wollman RusoffMay 29, 2024 In “What Investors Really Want,” a groundbreaking book published in 2010, the answer is to be rich, while also enjoying expressive and emotional benefits such as staying true to your values.Now the author of that seminal work, Meir Statman, a behavioral finance expert and professor of finance at Santa Clara University, declares what people want overall: well-being.“Technical skill isn’t sufficient. Advisors have to get to know the client as a person, more than just a vessel of money. Many advisors lack the human touch,” Statman argues in an interview with ThinkAdvisor.“Empathy can be developed … [but] advisors who are resistant to that … in a few years are going to be washed out,” Statman contends.He posits this perspective in his new book, “A Wealth of Well-Being: A Holistic Approach to Behavioral Finance.”Many find it hard to make the jump from focusing on finance to addressing clients’ critical life issues and heightening their contentment.Statman, who consults to Avantis Investors and will speak at the firm’s conference in August, warns that: “Financial advisors must evolve into well-being advisors if they are to compete … (because) advisors are now generic.”In the interview with Statman, an in-demand speaker and recipient of numerous awards, he discusses skills necessary to affect clients’ well-being and explains that behavioral finance has advanced to a third generation.Here are excerpts from our conversation:THINKADVISOR: “Good advisors are well-being advisors,” you say. Please define.MEIR STATMAN: Advisors have to get to know the client as a person, more than just a vessel of money. You need to help them increase their well-being, not just maximize their wealth.The only thing that many advisors really want is to establish a hedge fund. But unable to do that, they do the equivalent with the client: “We’re going to talk plenty about all kinds of strategies.” They lack the human touch. Empathy can be developed, but some advisors are resistant to that.Maybe they’ll last a few years. But in time, they’re going to be washed out. Today’s financial advisors need a set of skills that include empathy. Being able to express empathy is more important than knowing the intricacies of hedge funds.“The main job of being an advisor is to manage a client’s well-being,” you write. How do you do that?There are advisors who find it easier to talk about the financial aspect: why the market goes up and down, what the Fed is going to do [and so on].But they find it hard to cross the line from finances to life. That takes courage: Talking about things that matter is a jump that might be painful.It’s almost like a man asking a woman for a date but [worrying]: What if I fall on my face?But crossing that line is a skill, and skills can be learned.How?One way to facilitate it is to share my new book with clients because they’re likely to think that the people described in it are very much like them: Life is fine but not perfect.Then the advisor can have a conversation and ask what they thought about the general aspects of the book. Another way is to talk about things with clients like marriage or [siblings feeling cheated over inheritances]. If a client brings up the issue of division of wealth, the advisor might say, “Have you considered what will happen when your children open your will [and start fighting]? Is that what you really want after you’re gone?”It’s [fine] for the advisor to say, “My expertise is in creating trusts that are generation skipping and save on taxes,” and so on. But what’s the point to save on taxes if you poison relationships? You enhance financial well-being but destroy life well-being.“Financial advisors must evolve into well-being advisors if they are to compete for today’s and future clients because many traditional services of financial advisors are now generic,” you write. Please elaborate.I’m an advisor to a robo-advisor [Wealthfront], and I therefore know robo-advisors. I think that, even with artificial intelligence, a robo-advisor won’t be able to [create] an emotional bond with a client.So human advisors have a comparative advantage. What’s one significant expression of that?[Clients] expect the type of bedside manner from a financial advisor that makes them feel: I trust this person; I can speak about things that are embarrassing.But what’s the financial advisor’s challenge?People are reticent to disclose such parts of their lives. So being able to prod them [to do so] and make them comfortable is really important. Disclosing your own injuries of life might be a way to help make the cross-over.But if advisors continue to say, “My advantage is that I know hedge funds better than the typical investor,” it’s nice — but that technical skill isn’t sufficient. And even if they promise higher returns, well, the market is fickle.Does holistic financial planning generate life well-being?Yes. They’re identical. Holistic planning advice [encompasses one’s entire life], including education, health, religion.“The domain of finance underlies well-being in all other domains,” you write. Please explain.This is important: If I ask people what’s really important in life, they’re going to say, for example, family, friends, religion.But you really need to have money, though you needn’t be wealthy.You declare that the third generation of behavioral finance is here. What characterized the first and second generations?We started with a model of people as rational [beings who want to] maximize wealth — the first generation [in “What Investors Really Want”].Then we said, but people make mistakes. Some of what we call mistakes is a search for expressive and emotional benefits.People derive those benefits from staying true to their values, such as with socially responsible investing. My book, “Finance for Normal People,” describes the second generation as people wanting more than utilitarian benefits.The third generation is much broader. People want well-being because it encompasses all of life, not just financial well-being. It’s expanding the circle of finance.Do you think more advisors will become well-being advisors?I send my students to internships. Some go with financial advisors. Many have a sense that a financial advisor manages money, analyzes stocks and creates portfolios. Then they come to work and find it’s mostly a matter of human relationships, hearing about the client as a person. Some interns say, “That’s not for me. I pride myself on my technical skills.”Others say, “I really like to work with people.”But at the end of the day, their life will [actually] be: getting clients to think about what to do with a kid who doesn’t want to go to college; serving people with mild forms of dementia, clients who need a trust for their disabled child for when their parents are gone, clients who need to support elderly parents, adult children who are down on their luck.So people who want to become financial advisors have to consider all that.The original version of this story was published on ThinkAdvisor.