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When Money Advice Is Just So Right


A little consumer insight can help financial advisors attract clients, and improve service, too

When money advice is just so right: umbrella shielding a bag of money from the rain

Like it or not, the age of the gold-plated pension plan is over. Only about a quarter of Canadian workers have a defined pension to look forward to. Most don’t have a workplace pension at all.

That’s putting more of the retirement savings burden on Canadians’ own shoulders—with mixed results. A recent Scotiabank survey found that 70 per cent of respondents are worried they aren’t saving enough. Almost half are concerned they’ll have to rely on family for financial assistance in their golden years.    

Experts say one big reason for our retirement unreadiness is a lack of financial knowledge. In a federal government survey, Canadians scored 60 per cent on average on a basic financial literacy test. 

How do we increase those scores and ensure Canadians are ready for retirement? Do a better job teaching financial literacy in schools, say some experts. The problem, however, is that changing the curriculum takes time. Solutions are needed now. Which is why, in the short term, others are suggesting we turn to financial advisors.

Christopher Amaral and Ceren Kolsarici are two researchers on team financial advisor. Their recent study on what motivates people to employ these professionals may get more of us to use them. Kolsarici is the Ian R. Friendly Fellow of Marketing at Smith School of Business. Amaral is a PhD grad from Smith and now an assistant professor of marketing at the University of Bath in England. The results of their research were published in a recent paper in the Journal of Retailing and Consumer Services entitled “The financial advice puzzle: The role of consumer heterogeneity in the advisor choice”.   

Meet the clients

Much of the existing research on financial advice essentially focuses on two questions, says Amaral. One: Is it worth it to go to an advisor? And two: What type of person seeks financial advice? “But what we’re doing is trying to understand what motivates people to seek that advice. And then how, as marketers, can we use that to communicate better and increase the demand for financial advisory services.” 

Drawing on research in organizational behaviour and psychology, Amaral and Kolsarici devised a survey to zero in on those motivating factors. After surveying over 1,000 Canadians across the country, they developed a model that suggests there are two distinct consumer segments in the retail investment market, each motivated by different factors. 

People in Segment 1 tend to be more financially literate, have more experience in the market and are more engaged in seeking advice than Segment 2. Both groups are influenced by their trust in advisors, their level of risk tolerance and their level of self-efficacy. 

But perhaps the most striking difference between the two segments is in how they are influenced by attitudes towards financial advisors. While Segment 1 is motivated by positive attitudes towards financial advisors, Segment 2 is influenced by negative attitudes. Segment 1 is also more “promotion focused”. In other words, people in this group are interested in positive outcomes and growth. Segment 2, on the other hand, is “prevention focused”, and so pays more attention to negative outcomes. Security and safety is a chief concern for people in this group.

Robo-advisor, anyone?

Armed with these results, the researchers developed a classification algorithm that financial institutions can use to determine which segment their clients fit into. Banks would just need to plug in certain demographic and investment behaviour information from prospective clients, such as age, income and financial literacy, and out would come a reading that not only determines which segment the client fits into, but which motivating factors likely influence them. 

That level of nuance could help financial institutions better tailor their marketing and communications, and hopefully increase the level of advisor uptake overall, says Amaral. 

Amaral and Kolsarici also broke Segment 1 clients (those with a positive attitude towards financial advisors) into four personality sub-categories: “judgers”, “perceivers”, “thinkers” and “feelers”. Advisors should take a different approach with each group.

Take Amaral himself as an example. He fits into Segment 1 and, as the algorithm shows, he is in the “thinker” personality sub-category. That means he gravitates to a more fact-driven approach to financial advice. “When I go to my financial advisor, I want them to use technical terminologies and pull out a document that shows me graphs and figures. That’s the way my brain works, and that will be enough to influence me to say this is worth keeping a financial advisor on.”

A “feeler” personality, however, would be turned off by all of that objective data, Amaral says. Instead, feelers want a more personal approach, one that might relate the potential investment outcomes to the things that are important to them personally, such as their dream to travel the world upon retirement. 

For clients in Segment 2, who are prevention focused, Amaral and Kolsarici suggest that institutions should focus on the absence of negative outcomes in ads and targeted messages. They also say that financial advisors should offer low-risk securities to these folks and highlight loss avoidance rather than potential future gains. A future-gains message would be more applicable to clients in Segment 1, who are motivated by their positive attitudes towards financial advisors and are promotion focused. Robo-advisors might be a good option for those in Segment 2 given their negative attitudes towards financial advisors.        

Amaral says he and Kolsarici now want to work with a bank that would use their model to develop specific and targeted communications strategies. The hope, says Amaral, is to help advisors foster a more nuanced perspective of what their potential customers are like.  

Once advisors can do that, he says, “they’re not only going to benefit the bank, but more important, they’re going to engage their customers in a way that allows them to see the value of what they’re offering. And in doing so, they should be able to increase the demand for those services.”