"If you work with affluent investors—or hope to—it's essential for you to understand how they think and react."

Wealthy Psych 101

By John Bowen

You've probably noticed that wealthy clients react differently to particular situations. One might respond to a sharp market dip by wanting to discuss its causes and ramifications with you at length, while another would prefer not to talk about it at all.

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But while you might chalk up these differences to individual personalities, there's much more to it. My research partner, Russ Alan Prince, has identified nine distinct personalities that categorize all affluent investors. These nine personalities form the basis of high net worth psychology. Establishing a framework for understanding how affluent investors behave and what they want from investing and their financial advisors is critical today.

If you work with affluent investors—or hope to—it's essential for you to understand how they think and react. High net worth psychology will help you answer all the "what" and "why" questions about the affluent: What kind of involvement do they want in the planning process? Why do they prefer some services and products over others? Why do some have many advisors and others only one? Why do they choose the advisors they do, and why do they switch advisors?

With a framework for understanding and anticipating these behaviors, you'll be able to help your clients through volatile markets. Equally important, you'll be able to customize your communications so that you are "speaking the language" of each client and prospect. It will enable you to target your prospecting efforts better, customize your sales strategies, and build stronger long-term relationships with affluent clients.

These advantages can translate into serious business benefits. Advisors that we have tracked using high-net-worth psychology have been able to reduce the sales cycle by at least 40 percent, raise fee-based revenues 27 percent annually, and produce three times the number of millionaire client referrals.

Your knowledge of high net worth psychology should begin with an understanding of the nine personality types of affluent investors. Let's take a look at each one.

1. Family Stewards. The largest group of affluent investors, Family Stewards invest to take care of their families. Most of their investment goals and financial needs are linked to larger family issues, such as paying for college or transferring wealth. They are average in their knowledge of investing and personal finance. To work with Family Stewards, you must demonstrate expertise, which they define as being able to provide the services that will allow them to fulfill their primary goal of taking care of their families. You also need to show that you are prudent and careful. They need to feel that you will protect them and their goal of protecting their families.

2. Financial Phobics. Because they dislike investing so intensely, Phobics are hard to miss. They don't understand it, don't want to learn about it, and prefer to delegate the management of their assets to a trusted advisor. Because they lack the knowledge or sophistication to judge an advisor, they make the decision emotionally, relying heavily on their gut feelings. To succeed, financial Phobics must see you as a dedicated and reliable expert. To them, this means taking care of all their financial matters and being dedicated to their best interests. With little interest in investing, Financial Phobics are the least knowledgeable about—and the least sensitive to—investment performance.

3. Independents. Independents are straightforward. They desire the freedom to do whatever they want, and they seek to achieve this freedom through financial security. While they may hold corporate jobs or run businesses, they dream of financial freedom that would allow them to pursue hobbies or travel full time. Independents are average compared to the other groups in terms of their investing knowledge and sophistication, and they will turn to you to compensate for their lack of expertise. They define expertise as an ability to provide investment advice that will enable them to achieve financial freedom.

4. The Anonymous. The Anonymous are intensely private people who do not want to disclose their financial positions. While this clearly represents a challenge, it can also be a plus. Because the Anonymous do not want to talk to anyone else, they tend to be loyal once you have won their trust. In order to work with you, the anonymous need to feel confident their privacy will be preserved. They choose advisors who understand this and communicate the steps they have taken to ensure confidentiality. So you must be discrete and miss no opportunity to emphasize the lengths to which you will go to protect client information.

5. Moguls. Moguls are motivated by power. They seek control, influence, and power in their families, businesses, communities, and investments. While they do have some knowledge of investing, they regard it as another forum to flex their power and control. To successfully work with moguls, you must acknowledge their power and be powerful yourself. At the same time, they want to be in total control of the relationship. So you must be appropriately deferential and emphasize the ways in which they control their financial affairs by making the big decisions.

6. VIPs. VIPs are status oriented, enjoying prestige and the respect of others. VIPs look rich, and investing is about the ability to buy status and possessions. VIPs are not especially knowledgeable about investments and will rely on you as an investment expert. To relate well with VIPs, you need to be attentive and responsive. You should especially stress the reputation and prestige of your institution or firm.

7. Accumulators. Accumulators save more than they spend, live well below their means, and do not exhibit any outward displays of wealth. What they do enjoy is watching their money grow. The more they have, the better they feel. Capital appreciation is an end in itself. To work with Accumulators, you must reiterate their goals and motivations. They are performance driven and expect you to be the same way.

8. Gamblers. Gamblers love the excitement and drama of investing. For many, investing is a hobby. For some, it is their work; for a few, it is their life. Because of this, they are more performance sensitive than any other group. While they are knowledgeable about investing, they are not always astute. Not surprisingly, they often have a higher than usual risk tolerance. Gamblers love to find people with whom they can talk about investing and need their investment advisors to be as involved as they are. They like their investment advisors to share in the emotional excitement of investing. They also want their advisors to have as much expertise as they do.

9. Innovators. Extremely knowledgeable, innovators like to be on the cutting edge of investing. They like new products and services and sophisticated analytical methods. They often have technical backgrounds and might be computer programmers, engineers, or mathematicians. To earn the trust and assets of innovators, you have to prove your worth through leading-edge product expertise. They also expect that you will be as up on modern portfolio theory as they are. It is not unusual for innovators to run sophisticated analytical software on their own.

In these uncertain times, you must be sensitive to your clients' needs and fears. Use your knowledge of their high net worth personality to tailor your approach to each client, and you'll be the trusted advisor they need.