From the client’s appetite for risk to faith-based investing and ESG concerns, investment strategy can be influenced by many personal factors. This feature explores the human side of investing.
There’s a reason why robots are unlikely to take over the financial advice profession anytime soon: people don’t always make logical decisions. We’re way too complex for that. Investing is a prime example. Logically, you’d expect investment strategies to be informed by returns. In reality, there are myriad other factors that can come into play – from the client’s appetite for risk to their values, religious beliefs, and even their feelings towards the advertising of certain asset managers over others.
Any or all of these factors could, for a particular client, overshadow returns in terms of importance. It’s not logical, but it’s quintessentially human. More importantly, it matters. Decisions around investment strategies don’t only affect the lifestyle a client will be able to afford in future; they also affect the quality of life that client enjoys in the interim. For example, an aggressive investment strategy might help a conservative client afford a financial target they’re working towards, but between now and then, it’s going to be a source of stress. Similarly, if a client’s investment strategy doesn’t align with their personal values, they may feel weighed down by guilt, eroding any satisfaction or relief they might experience for achieving their financial goals.
This is where a financial adviser becomes invaluable – balancing spreadsheets and emotions to help clients sleep soundly at night while their money grows.
Getting to know the client
Investopedia identifies five “money personalities”:
1/ Big spenders typically enjoy flashy lifestyles, feel comfortable spending money, are not averse to debt and are happy to take risks when investing.
2/ Savers exist on the other side of the spectrum, feeling most comfortable when they’re being frugal, avoiding debt, and shying away from risky investments.
3/ Shoppers can’t resist spending money, although they have concerns about getting into debt. They’re bargain hunters who get a kick out of finding a great deal. When it comes to investing, they may take a varied approach but can often be goal-oriented – saving with the aim of buying something with those savings.
4/ Debtors tend to spend more than they earn because they don’t keep track of their money or their spending, often leading them to sink deep into debt.
5/ Investors are hyper aware of their finances and want their money to work hard for them, however much or little they have. They make conscious decisions and take calculated risks when it comes to investing.
Looking at those categories, it’s evident there’s a lot more to investing than graphs and numbers. What’s more, a client may not fall neatly into one of these categories – it’s more likely that they’ll have attributes of some or all of them that come to the fore in certain situations.
By having coaching conversations with clients and getting to know them personally, versus viewing them as a demographic, advisers can bring a level of humanity to their interactions that an algorithm would be hard-pressed to replicate. These conversations don’t focus on a client’s “stuff”, but rather the hopes, dreams, fears, trauma and aspirations behind the “stuff”. They involve listening more than speaking and asking rather than answering questions.
Balancing values and performance
Values-based investing involves aligning the client’s personal values with their financial goals. Various factors can come into play here and a savvy financial adviser can help the client maximise their investment returns without compromising their beliefs.
Religious beliefs: An example is Shari’ah compliant investing, which involves investing in accordance with the principles of Islam. Glacier by Sanlam provides a useful explanation:
“Shari’ah investing helps investors who have an ethical or moral interest in where their money is being invested. Shari’ah-compliant funds avoid stocks and shares in any company or industry whose core business and revenue are derived from non-halaal (forbidden or haraam) sources. They also pursue companies focused on sustainable, planet-conscious processes.”
Investor activism: Clients may prefer not to invest in companies or even whole industries that are misaligned with a cause close to their heart. Environmental, social and governance (ESG) investing has been a growing trend globally in recent years, particularly in the wake of the Covid-19 pandemic. Morgan Stanley’s 2021 Sustainable Signals study found that 83% of millennial investors believed that sustainable investing requires a financial trade-off – yet they were still more interested in sustainable investing than any other generational group.
However, ESG investing is a balancing act in itself. As Allan Gray notes in its 2024 Stewardship Report: “We recognise that, unfortunately, there are often trade-offs that need to be weighed up between environmental, social, governance and economic considerations. For example, tackling climate change is a critical global priority, but in a developing country such as South Africa, the need to address socioeconomic issues, such as unemployment and inequality, is equally important in pursuit of a sustainable economy. We seek to evaluate these factors in a holistic and balanced manner.”
Impact investing: The flip side of the ESG coin is that clients may look to make a positive impact through investments by investing in companies and industries that are aligned with their personal values. As Satrix puts it: “It is about considering not only your financial returns but also the broader impact your investments have on the world. It contributes to a resilient society. It’s about investing in companies that prioritise managing the most pressing environmental, social and governance risks affecting a business or sector, utilising cleaner energy sources and becoming more inclusive. One of the major perks of sustainable investing is the ability to align your financial decisions with your values. It’s a chance to make a real difference by using your resources to create a better world for future generations.”
You can have both
While clients may be amenable to trading performance for the knowledge that their investments and values are aligned, it doesn’t necessarily have to be an either/or situation.
Clients aren’t the only ones considering factors like ESG – portfolio managers are keeping abreast of the trend too and factoring it into their portfolios and company valuations. A financial adviser can help clients evaluate their options and ensure they’re getting the best possible returns without compromising on their integrity.
There’s nothing clean-cut about being human. It’s messy, complicated and emotional – and that’s what makes us special. By recognising the uniqueness in their clients, advisers can do what no algorithm is capable of replicating: build a genuine human connection.