Some secrets clients keep from their advisors

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  • 04 mins 41 secs
Our research indicates that clients routinely keep secrets from their advisors. Senior market research manager Mike Van Wyk details one prevalent type that threatens to damage the professional relationship.

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American Funds

                American Funds video transcript: “Some secrets clients keep from their advisors”

Will McKenna: Mike Van Wyk, you are not a portfolio manager.

Mike Van Wyk: No, I am not.

Will McKenna: But you do have a very interesting role and job here and background at Capital Group. Mike heads up our market research team here, and his job is really to explore the investor trends that are happening in our industry.

One of the big studies you did was just talking to a cohort of high net worth investors. And you came out of that with some very interesting takeaways. You call it “Secrets of High Net Worth Investors.” And let's just jump right in.

Mike Van Wyk: Yeah. So I'll start with the fact that that project wasn't designed to learn about secrets that investors keep from their advisors. It would be kind of an odd topic to start with. You don't go and ask people their secrets.

Will McKenna: Right.

Mike Van Wyk: What happens, though, is those secrets start to come out. And that's the way it worked within this research. What we saw were themes that began to come out that were things that investors were holding back from their advisors. And we categorized them into three different camps.

The first is what we call “staying in the game.” The second was a “hidden test” that people would often be holding from their advisor. And the third is “playing the field,” which just means that they would have multiple advisors, but they wouldn't be communicating that to their primary advisors.

Will McKenna: You mentioned the hidden test as the second one. Tell us about that.

Mike Van Wyk: Yeah, the hidden test. Again, it's fascinating to hear people explain what's going on with that. And I'm also convinced that most people have some type of hidden test in any relationship that they have in normal life, which is, it’s something that you're holding as an indicator that the other person knows you well — kind of a hidden test of somebody caring enough, and somebody being aware of your individual tendencies.

The way it came out in the investor-advisor relationship was that investors often had this type of hidden test that they were holding up increasingly as a measure of success for the advisor to hit. And they weren't communicating it to the advisor, partly because a lot of them started out as maybe somewhat trivial examples. But then they grow in magnitude, because they are an indication of whether the advisor is kind of connected to the psyche of that individual investor.

So probably useful to give an example. One of the people that we talked to — it was a woman who was in her mid-thirties — she was affluent and she was quite engaged in her investing and she paid attention to how it was doing.

She was working with the same advisor firm as her father worked with, and they both held stock in the company that he had retired from. Her father came to her and said that he had sold that stock after consulting with his advisor, because they felt it had peaked and it was about to go down in value.

She, in her next meeting with her advisor, expected him to bring it up. And he did not. And so after that, she walked out feeling a little bit confused by it, because she thought —

Will McKenna: So she didn't bring it up. She was expecting him to do it.

Mike Van Wyk: No. And again, in all these situations, there's communication issues on both sides. And for her, she walked away from that initial conversation surprised he hadn't brought it up. And she allowed that to become more and more important to her, to where it started to take on the magnitude of what was really a hidden test — where she was waiting for her financial advisor to tell her his plan for what to do with this investment that she had made that connected back to something that was really important to the way her father had created wealth.

So it gained in magnitude. Very important for her. She didn't proactively bring it up. Went through a year of time during which she had several interactions with her advisor, and it just kind of built and built and built, kind of in the background — in the back of her mind maybe.

Will McKenna: Right.

Mike Van Wyk: And what ended up happening is, indeed, the stock went down in value quite significantly. They hadn't sold in advance, and she ended up terminating the relationship with that advisor. 

So it was a relatively insignificant thing, as it started, that became a very important thing that had a lot of meaning for her — that in the end, in her mind, her advisor failed one of the most significant tests that he had to pass in order to keep that relationship with her strong. So that's an example of a hidden test.

Will McKenna: Right. Sort of symbolic of how well that advisor knew or understood her, in a way, or didn't …

Mike Van Wyk: Yeah.

Will McKenna: … in this case.

Mike Van Wyk: And hidden tests, that's an example where it was a fair amount of her wealth was tied up in it. Some of the hidden tests were a little bit more trivial, but they all follow that pattern. It's something that indicates that you know the individual well. It's something that gains and gains and gains. It builds and builds in magnitude over time. And eventually, it can cause a rupture.

 

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Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.

Information provided on this website is intended for use by financial advisors with persons who are eligible to purchase U.S.-registered mutual funds.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation

This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.

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