Historically, financial advisors have tended to think of clients in two broad categories: do-it-yourselfers and delegators. We all know that delegators tend to make really good clients, while most of us have tended to write off the DIY types. But there's good reason to believe this is a mistake.
I'm a strong believer in personality testing because it reveals certain innate characteristics that are hard-wired into people. Therefore, I'm naturally inclined to want to characterize prospective clients according to their willingness to delegate.
However, I've learned over time a problem with this. Unlike, say, the tendency to be outgoing or intuitive, a willingness to delegate is not a stable personality attribute. Instead, it tends to be contingent on the situation.
Many people are comfortable being DIYers when they are young(ish) and in accumulation mode. At this stage, they often feel (rightly or wrongly) as if their situations are sufficiently straightforward so as not to require the help of an advisor. However, as the level of complexity increases and the stakes become higher, they are much more likely to delegate to a professional.
I've encountered this situation many times with business owners approaching transition. It is not uncommon for them to have little or no relationship with a personal financial advisor until they get close to a liquidity event (and unfortunately in many cases not until afterward).
This is important for a couple reasons. First, advisors who understand this are less likely to write off good prospects whom they fear may be DIYers. Second, it can help advisors who are thinking about specializing in a certain niche to understand the potential challenges or opportunities.
Although I don't have statistics to back it up, based on experience I believe advisors are having difficulty attracting next gen clients due to this proclivity toward DIY. This is not to say that it's not a worthwhile niche or that there isn't a big need for help, but it's important to understand that there will be more price sensitivity as both perceived consequences and complexity are lower.
Here's a three question test to see where a prospective client is likely to fall on the DIY - Delegators spectrum:
1) Does my financial situation seem overwhelming to me when I think of all the different aspects I'll need to consider?
2) Are the consequences of making a mistake potentially very high?
3) Do I have the knowledge and skills needed to do it right?
What are common scenarios of prospective clients most likely to answer yes to all three questions?
- Going through divorce
- Selling a business
- Planning to retire
- Being laid off
- Coping with the death of a spouse
Former DIYers going through these types of events will often become delegators who are willing to pay for advice.