Numerous academic studies have shown that similarity plays a role in how people form friendships. It also increasingly dictates how they choose a financial advisor.
“Finding friends that are similar and share one’s beliefs and values has many advantages. It can provide protection from contradictory information and influence; this manages and stabilizes the self...Similar friends can also help construct or bolster a sense of self and identity by offering social comparison, feedback, and social identity,” professors from Wellesley College, the University of Kansas and Vanderbilt University, wrote in a 2015 paper
“It is therefore not surprising that seeking similar others is a dominant strategy for friendship formation.”
It also plays a clear, growing role in how investors choose a financial advisor.
Seventy-five percent of investors say they discuss politics with their financial professionals, and 57% believe it is important that they align on political views. The importance of that alignment is so significant that 44% say they would switch financial professionals if they did not align on political views, according to a survey of 872 investors by Hartford Funds Management Group.
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“That's something that 10 years ago, or 15, 16 years ago, it didn’t seem to be as big of a deal. The advisors kind of knew their role and the client didn’t really bring politics into it at the time,” John Diehl, senior vice president of Applied Insights at Hartford Funds, told RIA Intel.
As a result, the days of advisors only discussing politics when asked — and declining to share their own opinions or falsely toe the line — are gone.
“To me, this looks like it's getting much more personal for advisors,” said Diehl, who has worked in the industry for more than three decades.
The change is present across generations but political similarity is especially important to younger ones. The Hartford Funds survey found that 91% of millennials and others said aligning on political views with their financial professional is very or somewhat important, compared to 48% of older generations. The vast majority of younger investors (83%) have discussed politics with their advisor and 68% would consider a new one if they did not agree. Meanwhile, only 38% of older investors reported discussing politics with their advisor and 27% said they would consider switching if they didn’t align.
Younger investors seeking that similarity are the clients of the future and fueling this trend, but Diehl cautioned against lumping everyone in a generation together. Wealth managers should be considering it, no matter who their clients are now or will be.
“I think it's a wakeup call for advisors. They need to do some homework on how they feel about sharing their own political views with clients and how they prepare for those conversations,” he said.
Wealth managers have always discussed markets and portfolios in the context of elections with clients (investors have historically over-calculated the impact
elections will have on markets). But campaigns are beginning earlier and information has never been more accessible or consumed. Now, politics is top-of-mind, all the time, and advisors can’t be caught flat-footed.
Diehl recommends that advisors start with themselves. “The first thing you need to do is sit down and think how you would feel if you were asked about our politics?” he said. A little preparation can help advisors be more empathetic to clients’ political views and avoid inadvertently offending them.
With thoughtful confidence in themselves, advisors can then start preparing for conversations about politics with individual clients and families. What an advisor might know already about a client, and the current status of the relationship, should dictate how to engage them on politics.
Well-navigated, a confrontation on politics isn’t necessarily a bad thing either. “I do think politico conversations do open a window for an advisor to learn about the client,” Diehl said. Why a client feels strongly about some issues can help mold their financial plan and their portfolio in a way previous conversations hadn’t fully realized.
Advisors reflecting on which clients might be Democrats, Republicans, or another party, might also want to consider what a conversation with clients about religion would be like.
Half of investors under the age of 50 say it is “extremely or very important that their financial advisor shares their religious values” and this notion was strongest with the millennial generation, defined in a 2019 survey as those ages 23-34, of which 63% said it was important.
Michael Thrasher (@Mike_Thrasher) is a reporter at RIA Intel based in New York City.
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