Situational Profiling and Dating

Posted By: Advisor Analyzer Team

When advisors initially meet with a prospective investor, they have very knowledge of the client’s financial background and experience.  Situational profiling involves categorizing investors based on their stage of life or financial circumstances.  This is usually the first step taken by advisors to familiarize themselves with an investor’s preferences, economic situation, goals and desires.  Surprisingly, this stage is very similar to criteria used by women to differentiate men.  How so you ask?

Source of Wealth

When listening to conversations regarding men, money is a frequent topic of interest discussed by women.  However it’s not solely the number of digits in a man’s bank statement that’s important: it’s how they’ve obtained it.  We’ve all heard the phrase “He’s rich, but it’s his parent’s money” insinuating women distinguish between men who’ve amassed their own fortunes from those born with silver spoons. 

 

Similarly, advisors must distinguish between wealth acquired through one time financial windfalls from that earned through employment and savings.  Investment recommendations should not be uniform based on the dollar value of the client’s portfolio.  Without determining the source of the funds, an advisor has no idea whether the client will be able to replenish losses with earnings, or how essential the funds are to meeting future goals.

Measure of Wealth

Another trait women consider when dating is whether a man may be too stingy or frivolous with their funds.  There are men who spend money like it’s going out of style and there are men who take but never give a penny. Women understand that a bank statement does not shed light on how much weight a man put’s behind the same dollar bill, and so should your advisor.

 

An advisor must understand an investor’s perception of their portfolio value: how they feel about their wealth.  Some investors may take a loss of a couple hundred dollars without batting an eye while others need professional therapy.  The advisor must be aware of a client’s attitude towards the entrusted funds, and avoid investments where the client makes money, but loses sleep.

Stage of Life

Women also determine a man’s wealth relative to the stage in their lives.  They take into account a man’s future earnings potential in addition to their current situation.  An annual salary of $50,000 may be promising for a man straight out of college, but not so attractive for someone in their late 50’s.  

 

 Advisors should view clients on a similar basis when considering suitable investments.  A young investor will have a longer time horizon to accumulate wealth.  There is very high earnings growth potential and they are able to take on more aggressive investments.  Their investment objectives are usually focused on capital appreciation.

 

As the investor matures, they may lose their risk appetite and shift towards more conservative strategies.  Their priorities may focus on their children’s education and retirement.  While still mid career, they no longer seek highly volatile investments and prefer slow and steady growth wealth accumulation.

 

After retirement, investors usually lack outside sources of income.  They rely on their portfolio to meet daily living expenses, and their investment objectives shift from capital appreciation and accumulation to preservation.  They often have very low tolerance for large fluctuations and prefer stable investments with a steady income stream to meet their spending requirements.   

Conclusion

Unfortunately, advisors may ignore a client’s situational information, and invest the same funds in the same way.  Therefore, investors should periodically identify their financial circumstances and share their situational profile information with their advisor on an ongoing basis.   Needless to say, an advisor may learn a thing or two by taking a page from “What women want”.