Investor archetypes

Episode 1: In our first podcast episode, we explore how financial advisors can use investor archetypes to create better connections with their clients.
September 2016

Matt Smith

Former Managing Director, BMO Global Asset Management

Investor archetypes

Every investor has a unique perspective on the world, unique reasons for investing, and unique goals for their investment portfolios. In Episode 1, we explore how financial advisors can use personality archetypes to create better connections with their clients. How can you better communicate with investors who might feel that their advisor should have foreseen change in the markets?

Our guest is Matt Smith, the co-author of Someday Rich: Planning for Sustainable Tomorrows Today. In order to distill the complex psychological attributes of different people into information that investment advisors could easily utilize in their everyday lives, Matt and his coauthor describe four investor archetypes, each with their own set of personality attributes: Guardians, Artisans, Idealists and Rationals. This episode details each of the archetypes and how you as a financial advisor can best cater to your clients’ personalities.

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In this episode:

  • The history of personality types
  • Dealing with clients who feel you should have seen a market change coming
  • What communication styles work best for different clients
  • Finding out what archetype you are
  • Why people may fit into multiple archetypes

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Matt Smith – The reason this is so important is that the effectiveness of communication really impacts your relationship with your client and certainly the rapport you build with them, and when they sense that you get them, that you speak their language, it really helps make the bonds of the relationship stronger and go much more smoothly.

Ben Jones – Welcome to Better conversations. Better outcomes. presented by BMO Global Asset Management.  I’m Ben Jones.

Matt Smith – And I’m Matt Smith.

Matt Smith – In each episode we’ll explore topics relevant to today’s trusted advisors, interviewing experts and investigating the world of wealth advising from every angle.  We’ll also provide actionable ideas designed to improve outcomes for advisors and their clients.

Ben Jones – To learn more, visit us at bmogam.com/betterconversations.  Thanks for joining us.

Disclosure – The views expressed here are those of the participants and not those of BMO Global Asset Management, its affiliates, or subsidiaries.

Ben Jones – Every investor has unique perspectives on the world, unique reasons for investing and unique goals for their investment portfolios.  In episode one, we explore how financial advisors can use investor personality archetypes to create better connections with their clients.  How can you better communicate with investors who might feel that you should have seen the next big swing in the markets coming? Today, my guest is Matt Smith, co-author of Someday Rich: Planning For Sustainable Tomorrow’s Today.  Thanks for joining me, Matt.

Matt Smith – Thanks Ben.

Ben Jones – Matt Smith, my co-host, has agreed to be the first guest on this podcast.  Matt started writing his book with his co-author, Timothy Noonan, in the wake of the 2008 crisis that rocked the financial industry.  In times of stress and market shifts, it became more important than ever to understand the psychology of advisor’s clients.

Matt Smith – So, when we were writing the book, we worked with Meir Statman.  He’s a professor at Santa Clara University who, at the time, had just finished his book titled What Investors Really Want.  He wrote something in his book that I thought was really interesting and I think valuable to advisors.  I’ll paraphrase it, but essentially he said investments provide three kinds of benefit: utility, expression, and emotion.  As investors, we face tradeoffs as we choose amongst those.  So first utility.  Growth of our wealth is clearly a utilitarian value, but we also want our investments to say something about who we are.  That’s the expressive aspect of investing.  For instance, we’re seeing a growing trend in ESG investing.  Well, that’s being motivated in part by how people want to express themselves through their investments.  Finally, the emotional how our investments make us feel.  Some investments make us feel safe, others give us hope.  So, this is one of the ways that being empathetic and understanding the underlying psychology and the motivations of clients can help advisors.  The reason this is so important is that the effectiveness of communication really impacts your relationship with your client and certainly the rapport you build with them.  And when they sense that you get them, that you speak their language, it really helps make the relationship, the bonds of the relationship, stronger and go much more smoothly.

Ben Jones – In order to distill the complex psychological attributes of different people into information that investment advisors could easily utilize in their everyday lives, Matt and his co-author described four investor archetypes each with its own set of personality attributes.  They are: Guardians, Artisans, Idealists, and Rationals.  And while we’ll get into each in a moment, first Matt explains the long history of studying people using personality archetypes.

Matt Smith – This idea of sorting people in to personality temperaments goes back many, many, many years.  So, philosophers, thinkers, psychologists have developed different methods for describing aspects of the human condition.  For instance, if you go back over 2,000 years ago, Hippocrates, the physician philosopher, he saw that there were four humors that he described as cheerful, somber, enthusiastic, calm.  Later, Plato came up with his four characters, which were artistic, sensible, intuitive, and reasoning.  And then others developed their own categorizations over the years and if you fast forward to the mid-20th century, we see the development of Meyers-Briggs, which I know a lot of people are familiar with and is used in corporate settings to categorize people’s personalities and how we interact with each other based on our personality types.  And then in the late 20th century, a gentleman by the name of David Keirsey came up with the four personality types that Statman based his work on, which consist of Guardians, Artisans, Idealists, and Rationals.  Now, the advancement that Statman contributed to this work is that he took those personality temperaments and he applied a thinking about how a financial advisor would adapt their communication about financial topics given those different personality types.  And so, what we determined for the book is we called these investor archetypes.

Ben Jones – As I mentioned, there are four investor archetypes.  First you have Guardians.

Matt Smith – So, let’s start with the first archetype, which is called Guardians.  Now, about half of the population falls into this group, 47% of people would align with the guardian archetype.  Simply put, Guardians live by a plan and so if you’re an advisor and you have a client that’s a Guardian, not only are they interested in the plan, they’re also going to be very interested in what’s plan B.  If credentials are very important to Guardians, they’re factual, disciplined, traditional, frugal, cautious type people and they’re rattled by uncertainty.  The disruption of order is something that bothers them.  Be aware that losses in their portfolio may cause them to lose confidence in you, their advisor.  Obviously, that’s important for a lot of reasons.  The advisor would be well-served, I believe, to continually educate their clients that the client’s on the right path even though that path might be bumpy ahead of time while things are relatively smooth or going well.  Educate them that markets go up and they go down and we’re going to have some rough patches down the road on our journey to our destination.  But that’s okay.  That’s the nature of investing and we’ve considered that as part of the plan.  A perception on their part that they will not reach their goals, so if you’re in a situation where they’re behind plan, that will cause them a lot of anxiety, even more so for Guardians than other types, even to the point that they are likely to react by becoming overly conservative, and they’ll do this in order to boost their own confidence.  In general, I’d suggest using an orderly, linear presentation approach for Guardians.  Clearly outline the goals, the steps that you’ll need to take to reach those goals.  When changes are needed, propose to them a step by step plan to those modifications and why you’re making those modifications.

Ben Jones – Next, you have the Artisans.

Matt Smith – So, Artisans make up about 19% of the population.  So, one in five roughly people are Artisans.  Unlike Guardians, they do not live by a plan.  Now, that might create its own challenges, but one advantage of the fact that they don’t live by long-term plans is that disruptions in the marketplace or downturns are less of a concern for them.  So, rather than being paralyzed when the markets are not behaving well, it’s easier for them to make tactical changes than other personality types.  So, they’re tactical, they’re optimistic, they’re daring, they’re adaptable, they’re generous.  They often seek careers in roles like marketing, or sales, or entrepreneurial endeavors.  They have a tendency to feel that it will all work out in the end, that there’s good luck just around every corner, right? They’re hands on people and advisors should be ready when their Artisan clients bring them ideas about how to make money, especially if they bring you ideas about — ideas that might be too good to be true, or inappropriate, or fraudulent.  They’re always looking for a good idea of how to make money.  It’s part of the advisors job is to make sure they help their clients vet those ideas and make sure that they’re appropriate for them.  It’s not that Artisans don’t appreciate the value of saving or long-term planning, it’s just they have the least self-control of all the archetypes that we’ll talk about today, so they’re not so good at self-control and part of the advisor’s job is to help them stay to the plan.

Ben Jones – They sound like a lot of interesting people.  In fact, I feel like I know a lot of them.  But also, like they could be challenging from a traditional financial planning perspective.  How should advisors approach Artisan clients?

Matt Smith – Well, one thing I would suggest for advisors who have Artisan clients is show them different risk scenarios and explain the downside of different risk profiles.  The reason for this is they will be attracted to the positive side of those opportunities.  It’s important to show them that there’s possible negative outcomes as well.  So, this helps moderate their risk selection when you finally implement their portfolio.

Ben Jones – The third archetype is the Idealist.

Matt Smith – Idealists make up about 22% of the population.  Again, that’s about one out of five people.  Now, they’re aware that they need a financial plan and the guidance of an advisor, but they’re not interested in the details of a plan.  They respond to direct, plain language.  Analogies work well with them.  Statistics — while statistics might be necessary at times, they’re a turn off to Idealists.  They’re typically trustful, diplomatic, imaginative, empathetic type people.  They have a tendency to see the best in everyone.  They easily place themselves in the shoes of others.  They’re naturally drawn to people and they’re likely to find careers in counseling, ministry, journalism, these types of careers.  Now, given their nature, they can be vulnerable to requests for financial help, so children, parents, friends who might be asking them for financial help.  As an advisor, that’s something to be cautious.  You, as their advisor might have to be the no person.  You might have to be the bad guy and enforce some discipline to keep their funds intact and not be used unwisely for requests from others.  They’re also susceptible to affinity fraud.  So, beware of this.  Finally, they need sincerity in their relationships.  They value a personalized relationship with their advisor.  Advisors should know that Idealists are bewildered by financial markets and prefer not to deal with financial issues.  To them, these kinds of details are an imposition.  So, a challenge for advisors is to come up with ways to engage them in understanding their financial plan.  So, a couple of ways that Professor Statman suggested was first, use images or pictures to convey the plan, and second, to consider using a road map as a way to show steps in a plan.  Now, a road map, a path, a journey, these are all ways to articulate a plan that softens some of the rigidity, yet still has enough detail to be useful as a useful plan.  One of the advisors I interviewed in the course of doing the research for the book, he said to me when we were talking about client types and how to communicate effectively, he said Matt, sometimes I just have to draw a picture for my clients.  And I think that everyone’s had that experience from time to time.  A lot of advisors I think just — their natural talent at dealing with people and being communicators, they understand these concepts.  So, what we’re saying here might not be new to folks, but we’re putting some structure around why certain personality types react differently to different tactics.

Ben Jones – Our fourth and final investor archetype is the Rational.

Matt Smith – About one in ten people align with the description of Rational.  So, this is the least common archetype, 12% of the population.  They’re systems-oriented people.  The like to come up with what they think are ingenious and complex solutions.  So, the challenge for the advisors is to keep them from over-complicating their plan.  They’re strategic, theoretical, analytical, skeptical, logical people.  They often seek careers in leadership positions like military or other leadership roles.  They’re often CEOs or corporate team leaders.  They’re good at planning, especially long-term planning and they’re fiercely independent in their thinking.  They view financial markets as systems to understand and control, similar to how you would control a machine.  So, that perspective of theirs gives them a tendency to become overconfident.  As we all know, financial markets while can be understood, certainly can’t be controlled in the same way you can control a machine and there’s still a lot of uncertainty in outcomes of financial plans.  So Rationals, they have a strong desire to feel that their intellect and knowledge is respected by others and they can also come across as unemotional or stoic, which sometimes leads them to just being misunderstood as stand-offish.

Ben Jones – Okay so when an advisor runs into the rare Rational in his book of business, how should they deal with them?

Matt Smith – They have a tendency to want to have lengthy conversations about the cause and effect in the markets, so be prepared for that and with the Rational clients, that’s something that you probably have to do.  Be a good listener and help them think through things.  Of course, in the end, you want to make sure that they don’t come up with an overly complicated plan.  One word of caution, particularly with Rationals, is they have a tendency to feel that their advisor should have seen a downturn in the market before and had done something to avoid it.  So, they can be tough customers in that sense.  So, as the advisor you want to make sure that they understand that, while we can understand aspects of the market; we can allocate across asset classes, we can view risk, and manage risk in certain ways, no one, including you their advisor, knows what’s going to happen next in the markets.  So, if downturns come, that’s part of the experience of investing.  So, they like complex, ingenious solutions.  You’ll have to do some work to help them simplify their plans where appropriate.  I would suggest when you’re making recommendations to Rationals, lead with arguments based on science and data.  That is going to appeal to the way that they think about the world, and certainly think about money.  And probably most important is to demonstrate respect for their intellect and knowledge.  If you do that, this will help them overcome their skepticism of you, and in the end lead to a more healthy relationship.

Ben Jones – Now that you know the four investor archetypes, you’re probably wondering which of these types each of your clients fits into.  Sometimes it’s abundantly clear, but if it’s not, there’s a quiz that you can go through or have your clients go through in order to find out which personality type they are.  For advisors that are interested, go to bmogam.com/betterconversations to access the quiz and conversation guide to help embed this into your practice.  So, what’s the take away? Is there one method of communication you can use to best serve your investors no matter what archetype they happen to be?

Matt Smith – I’m not sure that adopting one style for all clients is necessarily effective.  I think there’s a couple of approaches an advisor could consider.  The first approach is to try to adapt.  So, that is understand the different archetypes, learn your clients’ tendencies towards one or more of these types, modify your communication for that particular client to match their style.  And this could just be doing simple things like I said.  In some cases, draw your client a picture, use a graph for instance for Idealists instead of showing them a table of data.  So, that’s one approach.  The other is just be yourself.  You have — all of us, advisors included obviously — have their own archetype and communicate in a certain way.  Now, I would imagine that it’s natural then for those advisors to attract clients that have similar archetypes.  So, you’re communicating in a style that you feel is natural, that matches your archetype, you’re going to attract clients that are similar to you.  Now, that does mean though that, from time to time, you’re going to run into a client where everything else about the relationship seems healthy and normal, but you just don’t click.  And when that happens, and know that that will happen if you’re going to just be yourself, don’t take it personal.  Don’t get frustrated by it, but know that maybe what’s happening there is your communication styles are in conflict and if you don’t feel like you can adapt to meet that client’s personality type, that it certainly might be that they find another advisor who gets them and that will happen.  Just knowing that these differences exists I think will make advisors better communicators.  One approach is to let your client know that you’re always looking for ways to improve your practice and your relationship with them and that you’d like them to take the quiz so that you have more information to adapt your communication style to them.  If you have a good rapport with your client, it can be interesting and fun and certainly might learn something about each other, so that’s one approach is to just say hey, this might be a fun thing.  It would take literally three minutes to do the quiz.  Another approach is knowing these six questions.  You can work them into conversations over a meeting or two or three with your clients and just keep notes of their responses and putting in their client file what you’ve learned about them.  If you see a tendency toward one personality type, use some of those tips that we talked about to adapt your communication style.

Ben Jones – I really like the idea of embedding this in kind of the fact finder approach early on in a relationship.

Matt Smith – Yeah, I would bet if you looked at a lot of advisor’s notes about their clients, you’re going to see these kinds of notes in the margin anyway.  Client likes this, they like that, they like the report formatted a certain way, so this is nothing more than adding to the discovery that you’re already doing to understand your clients better.

Ben Jones – Chapter eight of Someday Rich: Planning for Sustainable Tomorrows Today details the archetypes and includes a quiz at the back of the chapter.  I took this quiz myself to see what personality archetype I would be.  You know, when I read the chapter I really found myself relating most to the outline or archetype of Guardian, so when I came to the quiz at the back of the chapter, I quickly took it and I’ve taken it once again since just to confirm my answers and I was really surprised.  I came out as a nearly balanced mix of Rational and Artisan, so I had to go back of course and re-read both archetypes, and it kind of I guess was more obvious how I could have come up with kind of a head-fake on that answer.  As I examined those two different archetypes more I think the quiz really accurately reminded me of other results I’ve had from other personality profiles in the past.

Matt Smith – So this points out an important aspect of the profiling and how people fit into categories or don’t.  One caution I would give advisors is that this technique — it’s not a silver bullet.  It doesn’t current all ills.  Now, understanding your client’s personality type and adapting your communication style, in my opinion, will improve your communication effectiveness.  Now, that said, this should be seen as a method that already enhances an otherwise healthy relationship built on trust and confidence.  I’d also caution not to over-emphasize any single aspect of your client’s personality.  Like you said, you feel like you’re spread across a couple of temperaments and that’s perfectly natural.  None of us fit into one and only one archetype.  Now you might find some clients that strongly align to one, but know that your clients are more complex than just putting them into a single archetype and treating them that way.  So my suggestion is do a little trial and error.  I think there are some really good tips and tricks in this communication method that will help build more effective communication.

Ben Jones – Building effective communication, better conversations, and better outcomes, is what personality archetypes are all about, and it’s what this show is all about too.  Whether you’re an Artisan or a Rational, I hope you’ve added some valuable knowledge and a tool to help your practice grow and thrive.  Thanks for listening to the very first episode of Better conversations. Better outcomes.  We are interested to hear what you thought of today’s episode or about your experiences related to the topic.  Please share your insights with us at bmogam.com/BetterConversations.  Many thanks to Matt Smith for doing double duty this week as both guest and co-host.  Thanks again, Matt.

Matt Smith – Thanks for listening to Better conversations. Better outcomes.  This podcast is presented by BMO Global Asset Management.  To learn more about what BMO can do for you, go to bmogam.com/BetterConversations.  We hope you found something of value in today’s episode, and if you did, we encourage you to subscribe to the show and leave us a rating and review on iTunes.  And of course the greatest compliment of all is if you tell your friends and coworkers to tune in.  Until next time, I’m Matt Smith.

Ben Jones – And I’m Ben Jones.  From all of us at BMO Global Asset Management, hoping you have a productive and wonderful week.

Disclosure – The views expressed here are those of the participants and not those of BMO Global Asset Management, its affiliates or subsidiaries.  This is not intended to serve as a complete analysis of every material fact regarding any company, industry, or security.  This presentation may contain forward-looking statements.  Investors are cautioned not to place undue reliance on such statements as actual results could vary.  This presentation is for general information purposes only and does not constitute investment advice and is not intended as an endorsement of any specific investment product or service.  Individual investors should consult with an investment professional about their personal situation.  Past performance is not indicative of future results.  BMO Asset Management Corp is the investment advisor to the BMO funds.  BMO Investment Distributors, LLC is the distributor.  Member FINRA SIPC.  BMO Asset Management Corp and BMO Investment Distributors are affiliated companies.  Further information can be found at www.BMO.com.

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