Advising Modern Couples Equitably: Revealed Preferences #2 – Transcript

Dean Holmes
Welcome to episode two of revealed preferences, the key to deeper client understanding and better advice. Today we’re talking about managing risk preferences in couples. 60% of couples over 60 have meaningful differences in their risk preferences. This means one partner is a lot less comfortable with the risk than the other. So how do you create an investment plan that considers both partners preferences while still hitting their goals, and doesn’t have one partner losing tons of sleep along the way, when advisors get this right, both partners feel seen and heard. And that looks like increased trust, and acids under advice over time. I’m joined today by Mark Pearson and Pat Spenner, to talk about the difficulties and opportunities when advising couples on risk. To get us started, Mark, why don’t you tell us about yourself and your firm?

Mark Pearson
So yeah, my name is Mark Pearson, and I’m a financial advisor, I work for a company called innovative wealth solutions. And the reason why I got into advice and what I’m super passionate about is helping people actually live better lives and using my financial skills to enhance that element of it. And and I guess my niche is around, if focus on money is one of the elements of a well lived life, and that a lot of people think they’re going to solve the money issue first, and then go and live the lives they want. And I try and get them to sort of reverse that design the life they want. Understand where money fits as a resource in that and then actually make proactive action towards their best life.

Dean Holmes
Excellent. Thank you. And Pat, you’re our second guest. Tell us a little bit about your journey and your accent, obviously, as well.

Pat Spenner
Oh, well, it’s since you called it out. So, as you can tell by now, I am an American. But I live in New Zealand, I fled America, I sometimes joke that I’m a political refugee. So I came across to New Zealand in 2017. I’ll let you guys connect the dots on that one, the timing, but I had strategy and marketing for capital preferences. So as it relates to our conversation today, I lead our research program that brings our kind of core expertise in measuring and modeling and really making sense of human preferences and behaviors to the real world of advice. So studying clients and advice, relationships, their preferences through our Revealed Preference methods, and how they behave. And so that’s a bit about me.

Dean Holmes
Excellent. Thanks, Pat. And this is the topic of conversation today, we’re going to focus a lot on couples. But the key around the language that we use today is stated and revealed preferences. And so there’s a lot of research that’s been done into this. Obviously, the episode number one was Chicago detailed his academic research that is helping us understand the differences of stated and revealed preferences and why we need to focus on revealed preferences about Mark, tell us a little bit about the client relationship you have with with couples, how does this How does it start for a second meeting, in terms of what why your process might be slightly different to the to the norm.

Mark Pearson
It really came around, I guess the topic of this conversation was that earlier on in my career, usually one of the couples and it’s statistically the male, but it can be both, either one leading the conversation, they’ve sought out the advice, they’ve made the appointment, they’ve come with the preparation for what they want to achieve, I guess, financially. And what happens when that naturally happens is that person tends to dominate the conversation. And it actually sucks up a lot of your attention at the same time. And I didn’t even actually realize that was an issue as a junior advisor until I was actually pulled up by what I call the non CFO at one point that I wasn’t asking enough, and it was their life too. And if they were present in the appointment, I wasn’t doing that consciously. But it was a big wake up call was a junior advisor for me. And I had to find a better way to engage that person who may not be the spreadsheet focus one and may not be that I want to invest and I want to grow aggressively financially, but get them involved in the conversation because they are one half of the couple. So it’s a 5052 individuals merging a life together. And I had to find a way to I guess, start the conversation or build the basis of a conversation that got them both on the same page before we spoke about the money.

Dean Holmes
And so what what’s the first thing that you identify? Are you now capable of identifying who the first person is? Or the let’s call them the CFO for this conversation you have? Do you just start talking to the other one and completely ignore that the CFO or how does the conversation start initially?

Mark Pearson
Or nowadays? I actually started the conversation exactly the way that I did with you is I say that naturally in conversations. There is one of them that is dominating the financial planning aspect of it. I usually get a look at that stage and one of them looking at the other one and giving the sarcastic nod. And they’re the ones that have made the budget they’re usually the ones that are you know the stresses about money. And then I want to make sure this appointment is inviting for both of them. And so even just setting the table like that gives the non CFO more confidence that they are going to want need to speak up actually. And then my basis of my advice is that there’s really three choices you can make with three different resources, how you choose to spend your time, how you choose to spend your energy on what to do with your finances. And so you’re coming to me for the finances. But until we know where those time, energy and finances need to be heading towards, for both of them, I can’t even give them good financial advice that’s going to stick anyway. Right? Because as you know, if every financial plan was done on a spreadsheet, like we all make them, then all my clients would be, you know, they’d all have three yachts and million bucks in the bank account, right? It doesn’t quite work like that, because of the crazy human that’s behind the spreadsheet. And so getting to know what drives them, what drives what excites them, what scares them first, what they want out of their life. And then I tend to reverse engineer the money. And I guess what that does is then that brings a non CFO to the conversation, because they have context for the risk they’re taking, they have context for the financial plan. And it’s not just percentage returns, and M ers and all of that financial jargon, they don’t really care about what they want is the financial rewards of that money first. So getting both couples to acknowledge that vision first, then the money tends to bring them both into an equal power balance.

Dean Holmes
Absolutely. Well said. And it’s a great thing to simply call out the thing that is obvious to us as the professional right. So the clients know that at their core, that one person is primarily dealing with the finances as they’re coming in. And we don’t need to worry too much. And if you can step forward and actually call it out really quickly. It’s like ripping the band aid off. And then you can get into the detail really quickly. And obviously, it might catch some people off. But obviously they also have a little smirk and laugh because they know it’s true.

Mark Pearson
Yeah. And I like making a joke when that smirk happens, because I’m like, Okay, well, you’re obviously the CFO, and you get a little laugh and a little giggle and you know, you can you can move into it.

Dean Holmes
Excellent. And so your capital preferences has done a lot of research in relation to couples overall and their financial decisions. What’s what’s a couple of things that you’ve learned over that journey? That’s, that’s important for our listener to take away? Yeah, well, maybe

Pat Spenner
I can just take a minute in and talk about how we did the research, because I think it’s a unique approach. In this in this study that we did, which we’ll make available in the show notes, it’s called not so odd couples, crafting an equitable advice experience for modern couples, we, we looked at 180 190, hetero couples in advice, relationships, and we look looked at each partners experience and attitude about their advisor relationship and toward each other. And then we also as part of that took a very deep dive on their risk preferences. So using capital preferences, revealed preference methods to study each partner is risk preferences. And so, you know, top line from that, just to put a bit of a finer point on what we’ve just been discussing so far. And, you know, Mark, you mentioned the, the non household CFO, so to speak, you know, so often that that non financial partner doesn’t want to have a stake, obviously, in the advice relationship, but often maybe feels a little bit hesitant to jump in, right. And, and what we found is that, when you have the two partners, and a couple, about one out of four female partners, don’t feel heard or seen in that advice relationship. And you know, as you both pointed out, a lot of times that’s unwitting on the part of the advisor. But interestingly, it’s not just females, one out of six male partners, don’t feel heard or seen. And, you know, we could maybe dive in a little bit into how we measured that. But it turns out to matter when you’ve got a silent partner who maybe wants to have a steak doesn’t feel heard or seen when we looked at things like net promoter score, which many of audience may be familiar with, like that’s a likelihood to recommend kind of metric, we see huge differences there. So for the one out of four females who don’t feel heard or seen, you know, their net promoter score drops into the 30s versus those who do feel heard and seen. You’re looking at net promoter scores in the 80s and 90s. And so that’s sort of like the near term issue, right? of just a partner who’s maybe not fully on board is less likely to recommend. We also interestingly, ask questions around how likely would you be to stay with your advisor? If your partner exits the picture, for whatever reason, death divorce, what have you. And again, you see that for the one out of four female partners who don’t feel heard or seen. They’re only 17% likely to stick with their advisor if the partner exits the picture, versus the ones who do feel heard and seen, they’re up in the 60s 70s. Right? So huge difference there. And it seems to potentially matter in terms of how likely am I going to be to stick with this advisor over the long term. So that’s, that’s one top line, at least from the study, we can we can dive into it a little bit more, but I’ll stop there for now.

Dean Holmes
So that so the biggest takeaway that I had from that, that is the concept of referrals. So I haven’t met an advisor that hasn’t yet said to me, I get most of my new business from referrals. Now, whether that’s true or untrue, it’s the same money that gets thrown around. But statistically, most of our clients would be couples. And the idea that we’re actually we could double our referrals by making sure that were that both parties in the in the advice relationship are actually seen and heard. So that’s, I think that that’s a really good takeaway, first and foremost of growing the business because typically, an advisor might ask for a referral, they’re going to ask the dominant CFO, Mark, not the not the partner, whichever section six it may be. So Mark, obviously, in your, in your world, you’ve you’ve sort of jumped over this by calling it out in terms of the awkwardness, as you go into the relationship, then there’s all there’s also sometimes a different level of financial sophistication. So talk to us a little bit about how you navigate that next phase of the differences in experience and understanding in relation to finances. Yeah,

Mark Pearson
that’s a great question. And that’s, that’s another reason why I call it out initially, because as we all know, one of our jobs is about execution on on strategy. And the other part for me is a big part is education. Because the the better base level education, you’ve got this, the better financial decisions you make either with and without your advisor in general, but the non CFO is not going to care if they already feel like their own their depth, they already feel like they’re too far behind the ball. When you start getting into history of returns and asset allocations and all of those things, they’re even less likely to engage with you when you’re talking about that. And so I think the the the key to getting them to get on board and catch up is that you’ve got to you there’s really just two languages are the same thing. Like what what, what the CFO wants, and what the non CFO want is typically the same stuff. It’s just expressed in different languages. And so trying to move from, I guess, the CFO looks at it, like what am I trying to build for us? And the non CFO lots of the time looks like what am I going to have to give up, because again, when you’re investing in your new revenue surplus, it’s usually about sacrifice on their end. And so understanding the broader picture first, and that what we’re trying to do is make their money work to get that broader picture, I get much better engagement with a non CFO to start building out their knowledge base, which is in then turn usually starts to bring up their risk profile up to scale, the more you understand, the more you sort of grasp that the ups and downs of the market are for a, for a long term purpose, then they’re going to engage a little bit more when you start getting to those, those nuts and bolts and in terms of how to build portfolios and strategies.

Dean Holmes
Absolutely. And I don’t think we earn many brownie points in the relationship overall by by proving to either party how smart we are. And so the objective of explaining it as simply as possible, and frankly, as simply as possible is that so both parties understand it. We don’t need to in our world prove that we’re more intelligent than our clients by proving to that by talking about asset allocation and IRR and all these other elements of returns that are really matter to the client in front of you. And Mark, tell us a little bit about the software that you’re using at that front end, and how that helps you have these conversations as well. Yeah, so

Mark Pearson
I work with, with a couple of different software’s one of the ones that I’m a big fan with is, is a company called alumium. There are values based planning software. And they tend to build that that life vision first, what do you value? What do you value it for? And it’s actually done separately. So you were talking about bringing the power balance back together, they complete that section without the other person either being the room to start with or even able to speak. And what I find with that sort of a process is you usually find whether or not alignment is between the two couples, because they’re not coming to you because things are amazing, right? They might be doing well and wanting to do better. And they might have big problems, they will go unsolved, but until you get those to the language barriers to be removed and they go home instead of language to use back to your point about simplifying things. You tend to find where the misalignment is, and sometimes the CFO needs to hear from the non CFO about what their CFO based attitudes are doing to the emotional health which again, we will take their risk profile right. So the person who’s always trying to maximize their savings and invest it comes across as I can’t spend without guilt on my lifestyle and and that’s not the intention. That’s not what you’re trying to achieve here. But it does tend to that’s where the friction starts to come with them getting on the same page. And really, really kicking those goals. And they’ve got really good software regarding and then it’s about risk profiling, like, like Pat’s company. So I’m sure he’ll tell you a little bit about it. But it’s about, especially risk profiling in a way that involves beyond the standard, you know, 10 or 11 questions that a lot of advisors tend to run their way through. And anyone’s been an advisor for longer than five minutes knows that those questionnaires are, if not useless, they’re a compliance tool where you really get the knowledge of each person’s true risk profile, is those revealed versus hidden preferences? Or how do you get those hidden preferences out? And and that’s a tool that I can pet will obviously explain about, but that’s been pretty great, too.

Dean Holmes
Yeah, absolutely. And the the challenge is that when we do the paper based risk profile, which still exists in lots of licensees today, it’s incredibly static. in its in its nature, we often have the two columns in the one piece of paper for Partner A and Partner B. And so that causes some issues, because there’s a little bit of I’ll have what he’s having, or I’ll have what she’s having conversation through the through two columns there. And and the questions, you’d keep doing these risk profiles, and you’ll probably find that the answers are all generated to the same level, because we’re involved in the process as as well. And so capital preferences, Pat, obviously, it tries to solve some of these issues in in and around, stated and revealed preferences. And so if you’ve listened to the podcast before, you’ll understand dolphins, so we won’t, that’s a code to go back and listen to the one before. But tell us a little bit about, from your perspective, Pat, the capital preferences, tool, and how it helps between the couples in the stated and revealed preferences. Yeah, I’ll

Pat Spenner
pick up on two of Mark’s points there, because I think they’re really important. Number one is providing, let’s say, an easy entry point for both partners, and in particular, for the non CFO Partner. And the second point is giving each of those partners a chance to kind of be heard and seen independently of one another. And, you know, Mark, you talked about how you do that kind of at a higher order, values, goals level. And I think, you know, what we’ve seen in the research is that it’s equally important to do that, when it comes the domain of understanding risk preferences of each partner, because Dean, as you were saying, you know, so often, it’s still the pen and paper questionnaire. And what we find from the research is that over half the time, that questionnaire is delivered on a joint basis, and so, if you’ve got Angus and Anna there, and Angus, you know, statistically speaking, the household CFO, and you’re pulling that questionnaire out, it’s Angus, whose voice is going to come through there, and Adam may defer to Angus, and on top of that, you know, quite often we as advisors might unwittingly introduce our own kind of, you know, what economists would call social bias in the picture that right, and that might lead and or Angus to, to answer in ways that maybe wouldn’t be true to them. And so, you know, what we’ve tried to do from a revealed preferences standpoint is to provide a very intuitive experience that strips the technical jargon out, so it can kind of have a level playing field, or the CFO and the non CFO Partner, do so in a way that’s, you know, can be sent to those partners independently, and such that those partners can complete it on their mobile device, it’s quite quick and intuitive. And then, you know, the, the data and the insights, come back to the advisor in advance of meeting so now the advisor has the intelligence on each partners kind of position there and the insights about the partners preferences, just in the way that you know, you would be equipped, presumably mark with their, you know, information about their values, their goals independently, and then now you can play master dot connector between them. Right? And, you know, going into that relation, that conversation around risk preferences in this case, where are these? Where are these two partners different where that maybe in Do they not quite see eye to eye, and you can sort of pull that non CFO out to the table a bit more and find a way to bring them into the conversation. And so we kind of see from the research that it’s over half the time that it’s jointly administered with a risk tolerance questionnaire, 20% of the time, it’s just one partner who’s taking the, the the risk profiling 13% of the time, neither partner has ever risk profiled. And so there’s just you know, your likelihood of detecting differences between the two parties is, is pretty low. If you look at the kind of status quo approach today,

Dean Holmes
subaqua Let’s talk about the what we do when we find out this information. So, theoretically, you say, let’s say for a moment that you can identify the differences between two couples, how do you navigate the discussion? So they’ve decided on one goal, let’s call it a retirement goal for one of a better word right now, but we’ve decided on one goal, but they both have remarkably different risk preferences. Let’s, we’ll come back to loss aversion with Pat in a moment, but just focus on how do you have the conversations with clients after that point?

Mark Pearson
It’s a great question. And I think one of the things that we have to be careful the reason why risk profiling is even a thing and we’re trying to get that right is that the client has the resilience to see the timeframe and the investment all the way through, right, the last thing you want is to freak out in the middle of a downturn, and we don’t get to the result that we’re seeking. So one of the reasons that, that I combined that long term thinking with the with the base risk profile is like, Okay, well, using some of our financial advice tools, at your natural risk profile, non CFO more conservative, here’s the results that we’re likely to achieve over the long term with all the disclosures that you need to do with that about projections. And then here is where and this is how far we are falling short, or if we’re going to make it and to get where we want to go connect it to the fact that it’s really important to them, and they’re chasing it with a genuine want for to better their lives, we can then start to give them the consequences of of chasing a slightly higher result and what the what the consequences are. And then I think the more you prepare, particularly the more conservative investor there are going to market cycles, and there are gonna be periods where you feel uncomfortable, and you need to know now that that’s going to happen, and what your risk profile and your annual strategy is going to expose you to and that that is actually part of the cycle. It’s not just about it’s not if you’re still going to be a downturn, it’s when and how much can you tolerate and understanding that even risk profiling isn’t really accurate until it actually happens, and only how many times you’ve had it, where, you know, someone comes across as a very aggressive, very, very confident with risk, and then the downturn happens, and all of a sudden, they’re not so comfortable with the risks they took, right? Because no one’s calling you and complaining when everyone’s making money, right? So, you know, so it’s about, it’s about making sure they understand that the purpose is of that is to get is to be able to be resilient all the way through and what we can and can’t control in that process. And then matching it with what their goals and aspirations are. So we call that the aspirational risk profile. So if we want to get where we’re going or the percentage chance of being achieving this in a shorter timeframe, or however we want to frame it, that then begins to then help even the less educated non CFO, that they they’re a little bit more informed that No, it’s not going to be uncomfortable, even with the conservative risk profile doesn’t mean you can’t lose money. But we’re giving up a chance to live that life that we’ve already previously established is really worth the risk to try and get there. Absolutely.

Dean Holmes
So the my one favorite word from you, Mark is resilience. I’ve never heard it in the context of risk profiling before. But to say that we we as investors need to be resilient to see it to the end, I think it’s a really powerful statement. And you spoke about the one client that we all have that freaks out when the market falls even though they want it to be high risk. So that’s someone that has a high loss aversion and traditional risk profiling pretty well can’t find that out. So back, can you tell us a little bit about the research around loss aversion? How many of them, how many people are out there maybe that have this characteristic? But and then how do we actually find them through through this process?

Pat Spenner
Yeah, well, you know, many of your many of our audience members who are armchair behavioral economists will probably know that loss aversion comes out of the research of Daniel Kahneman and Amos Tversky, who are Nobel Prize winners in their whole field of Prospect Theory, but loss aversion, you know, very simply put, as the pain that we feel are how intensely we feel the pain of losses. And quite often that when we’re in the domain of losses versus gains, it’s sort of asymmetric, as economists would say, right? We feel the pain of equivalent losses, much more than we would the pleasure of equivalent gains. And so, you know, easing, loss aversion apart from risk tolerance, those are two separate and distinct dimensions of risk preferences, is something really, that can only be done mathematically. And so, you know, Shahar has research in the first episode revealed preferences as mathematical in nature. And through the decisions the series of decisions that an individual client makes. Through that method of risk profiling, we can mathematically tease apart risk tolerance and loss aversion. So really important for picking out the clients who are going to be more or less resilient. Because if you ask a client, how loss averse are you, they’re going to probably look at you like you have to heads like, you know, number one, what is loss aversion, right? And then how would I tell you how loss averse I am. But through up through my decisions, I can reveal if I have loss aversion and so important to pick that out. And, you know, going back to the study for a moment, when we applied risk reveal preferences to understand or measure each partner’s preferences and those couples that we studied, we found that in couples under 60 years of age 60% of the time, they have a meaningful difference in their risk profile. And, you know, you could think of that as in a five model portfolio lineup, they’d be at least one model portfolio apart, I didn’t 20% of the time, there are two or more model portfolios apart. So quite quite a big difference. And, you know, we believe that that’s largely from loss aversion, that, you know, it’d be difficult to pick up when you have those partners that are far apart there. So that’s where a method like revealed preferences can really help in in finding out a loss of versus one member of the couple versus the other. And even though you have the member who might tell you or who are risk tolerance questionnaire might find, you know, an aggressive risk taker, as he said, before, you know, when markets get choppy, they may be the first ones on your doorstep looking to sell, and so really is about resilience, and teaching couples about kind of their natural risk comfort zone, and then mark, as you were saying that the risk they might be required to take to achieve their goals. And sometimes those are intention. And so knowing loss aversion can really help advisors resolve that tension, and then set in place a plan to stay ahead of, you know, the more anxious partner, or maybe the less resilient partner between the two. And this allows

Dean Holmes
us mark a new mark to, to identify these people in advance, which is great. And then both from an education perspective, spend some time with them. And we’ll talk about that. But also in the proactive nature of when the stock market is all rolling, you actually know who you need to call now, as advisors, maybe, maybe you do know already who you need to call the spidey sense will tell you some of them. But this concept of being able to identify the Lost loss aversion clients and get on the front foot with them is is incredibly valuable. Talk to us about what the process would be to to once you’ve identified these loss averse people, how are you having a different conversation with them?

Mark Pearson
I think what look, you can never really well, one thing I always emphasize my clients, and you should always is that you can’t predict the future. But you can connect the dots looking backwards. So what I’ll often do, even before we jump in is I’ll show them, you know, the history of returns over the last 40 years and the peaks and the troughs. And we sort of simulate what is going through a client’s head, depending on when you invested in what’s happening at the time and what could have been happened and what’s mostly going to happen when you jump out. And one of the one of the charts and the models that I use is I usually use it around that 2008 financial crisis moment, you know, you bought in or you started investing 2007 2008 happens, and we sort of go through what’s going through the investor’s mind in percentages, right? You know, at that time, and then you know, how many years had been spent growing versus how many years have been spent retracting and all and all that sort of thing. And so, I found that very effective, because even when the loss averse person is calling, what I get is that I know I’m freaking out. And I want you guys to tell me, and we’ve been through this thing, and I know it’s going to rebound. But right now here’s what I’m feeling is I want to do. And so what I always combat it with with not trying to prevent them from feeling those feelings, in fact, preparing them that they’re going to anyway, right not trying to beat human nature, because loss aversion and all the other behavioral biases are there, whether we want them to or not get the anchoring and things like that. And but you know, one of the stats that I love saying is that pretty much every managed fund in the world has a better performance record than the individuals investing in it. These managed funds don’t sell managed funds don’t freak out, they follow their mandate, they follow the philosophy. And so look, if the goals change, so be it if their circumstances changed, and we change the plan, but as long as those things are held constant, we’ve pre talked about these things. And I just remind them of that conversation. And like I said, people will remind me that they know they’re going to hear from me before they’re even calling, but they just need to be walking through that again. And I also don’t take agency away from them. So I say, okay, you can sell if you want to sell, but here’s what happened. And here’s what’s likely the reason why you feel that way. And here’s the consequences of you doing that. You settle at the bottom or near the bottom, you calm down, the market bounces for a couple of weeks or a couple of months even you get back in and you could easily then call another loss straight after that. And then if you do that you’re never investing again, right? You’ve been twice burnt, you’re out you’ll never ever do it again. And so you know, getting them out of that situation and giving them back to perspective and that’s what our job is really is to give that third person perspective is usually enough if we’ve got that risk profile right for for them to come down and get through it, you know, and at the end of the day If we’ve got the report, to be honest, they can tell me when you know that, I’m going to give them the honest that all I care about is getting what they want out of their finances. And we established that by them telling me what they want. So the whole plan is about getting that. And we expected this. So if I can give them that rehearsal over the phone, not in 100% of cases, but most of them, they hold on, they stick to the plan, and we

Dean Holmes
get through it. Yeah, absolutely. And we get that benefit of most clients Hold on, but they hold on, because you’ve told them to. Whereas as you grow this muscle around education and coaching them around loss aversion, they start to hold on, because they know that that’s the right thing to do, as opposed to my advisor told me not not not to sell. So Pat, tell us about something else from the research that you’ve found interesting for couples to help the listener on navigate this area of risk profiling for couples? Yeah, sure.

Pat Spenner
Well, you know, one of the things that we took a close look at was the so called quality of the call at risk read out. So once you’ve profiled to the couple, we asked a series of questions of the study participants around that risk readout the conversation they had with their advisor. And you know, the four elements of this risk readout quality were as follows. So, you know, our advisor provided a very clear explanation of the results facilitated an insightful discussion about what our risk attitudes mean, who are financial planner investments, helped my partner in me reach consensus on a shared risk profile handle that fairly accounts for our individual risk attitudes. And then our advisor use the risk profile activity to point out insights about differences and similarities between my partner and me. Okay, so those four items together take that as a high quality risk readout, what we found was that over 60% of couples are not getting that high quality risk read out today. And probably it goes back to all the reasons we were talking about before, right, do you know the joint risk profiling such that it’s just the one partners voice is really coming through that a partner isn’t really feeling involved in all of that. But when you look at those two populations, right over 60%, and don’t get the high quality descrito versus the remainder who do, there’s huge differences again, and net promoter score, about a 40 points swing there, the difference in intent to add AUM and the next 12 months, so you know, about a 10 or 12 point percentage point difference there, and then a sense of getting good value for the fees we pay, we see that those who get the strongly rated, you know rated risk readout, have a better sense of they’re getting valued for the fees we pay. So it kind of comes back to it seems, confidence from both partners, feeling like they’re seen and heard, and their advisor, you know, is playing very much into kind of Mark’s view of finding the ways to connect the dots, build the bridges, find the common language that might, you know, sit above the technical jargon and so on, to bring these two partners together and, you know, point out the differences and recognize the differences between them, but also find the similarities and find the, the connected language in the in the, you know, the shared values and so on. So that was just another interesting piece of the research that came through in that kind of advice moment, right, that that part of the advice experience of the risk reader. And

Dean Holmes
it’s valuable to, to think about it as as customer or client service at the end of the day, like what is a great experience for an a client to go through with their advisor. Those four elements are key to having a great time with it, frankly, whether you’re talking about their risk preferences or superannuation, or or another part of their plan is was it was it clear did my advisor help facilitate a discussion around the plan, so they both bought into the, to the to the journey, helping to reach a consensus is such a great customer service element between two couples, and then highlighting the differences so that we know that everyone’s different, but at least we get through that journey and have the honest conversation to Mark’s point at the beginning about rip the band aid off and know that there’s differences between the two of you, and let’s talk about them. So at the end of the meeting, you have a great experience, be it today about risk profiling, but really a great customer service journey over overall. Mark, do you get feedback from clients about the journey that they’ve gone on? Maybe they’ve seen another advisor before or they’ve just told you their experience? Can you talk to us about it from both parties?

Mark Pearson
Yeah, I think I think yes, they the reason why stick with this philosophy one obviously I believe in it, but to is because of the results that are generates right. And you were talking about referrals and the majority of referrals coming from CFOs. With this method, the majority of the majority referrals come from the nonsense Ever, because they’ve for the first time in maybe their life, because it’s a weird thing, when you think about money and power dynamics, still to equally value human beings, regardless of what you earn for a living, and all of those other factors, bringing the even that you’re saying that awkward conversation at the start, it is a little bit awkward when you’re not used to bring it up. But it also gives them the ability when they know they should be disagreeing or that it’s natural to, they’re more likely then to disagree. And so from the non CFO, obviously, it’s about voice being heard about them feeling like they finally understand why financial planning is important, or why to get into it, they started getting interested. And that’s something that in a positive way, not in a very negative way, which a lot of non CFOs tend to view money and investments as a bit of a negative thing. And from the CFOs point of view, one of the things that I get feedback on all the time, is that they weren’t aware, even themselves, they had they had hidden, like the non CFO was shitting their preferences from them as well, right? They didn’t realize the consequences of their actions, or they didn’t realize what you know, what they’re pulling forward was it was generating in their relationship. And as we know, money is a huge factor in, in relationship breakdowns and and that having a facilitated situation where you can take the looping away, you can take the patterns away and have a conversation that I can cut in when it goes back to the you know, the tried and true relationship argument around money, it actually means that they get to conclusions and they get on that same page a lot easier with that third person in the room rather than just bouncing between old patterns and old money stories that they both have. And so the CFO feels heard actually, in a very strange way, right? For the first time the CFO actually gets feels heard by the non CFO, because the non CFO kind of gets why they’re stressing and focusing on money. So much like they they are saying, even though they’re talking a lot anyway, they’re actually probably seen by their partner.

Unknown Speaker
Absolutely. Oh, well, I

Pat Spenner
mean, picking up on on that last point, from Mark, I think I’d want to give the vast majority of advisors all the credit in the world, like all of them, you know, all of us would have the intent to serve both partners and ensure that their needs are seen and heard. But it’s a lot of times unwitting. Right. And so, you know, some of the interesting stuff in the research, if you stay on the landscape is, you know, 60% of advisors, focal time in a meeting is on the the male partner, right, in a hetero sort of situation. And, you know, a lot of this is just unconscious, unwitting, right. And so, you know, it’s something that, you know, I think there’s kind of two pieces to getting after it as an advisor or an advisory firm. One is, what’s the, what are the facilitation and communication kind of competencies and skill sets of the advisor is for engaging both partners in the couple and helping to find and connect the dots there. So there’s the quote, unquote, soft stuff there, that’s critically important. And then if you’re running an advice firm, it feels to me like there’s a set of process steps that you can take to improve the odds, right, that your advisory team is going to be able to be effective here, and ensuring that both partners are seen and heard. And I think it’s one on the process front, it’s the adoption of tools, like the ones Mark was talking about, um, higher order values and goals, like the ones that we specialize in capital preferences around, you know, revealed preference modeling on the risk front. And so adopting those tools and processes, I think can kind of improve the improve the percentage hit rate there, right, that a squad of advisors or a firm is going to be able to really stand out, and so that you kind of get the process side, working with a soft skill side, and then that becomes pretty powerful.

Dean Holmes
Absolutely, absolutely. And the the point around from a business perspective, making sure that we have a robust system at the front end to get the clients values and position, and then another system to make sure that we’re getting those preferences is key. And that’s we’re all as advisors trying to essentially build out build businesses see more clients and be able to give a great client service through the end. And the research around the NPS score is a great leading indicator of how the business is going. Not all small businesses can do that. But we know that if we can learn from the Giants, like if you’re going through this process, large firms are getting NPS research confirming the benefits of talking to the non CFO as our example. Then we know in a small business sounds that we’ve got to put extra effort into those elements. And as Mark says we should get extra referrals from those clients through through the process because they’ve been seen and heard as as part of it as the mark what do you do year in year out so as you grow this advice, relationship with your with your couples, what seems to change over time in that regard.

Mark Pearson
With this, you find that again, you don’t have to manage the non CFO CFO, calm was Asian or the difference quite so much because they they they know when they walk into the room that there is equal share, which is great. And most of our plans, I expect, most planners were working off quite as sort of a five year or 10 year sort of plan about where we’re going. So you sort of zoom out of the short term for quite a while and just make sure that all the markers that we’re trying to hit are in line with what we said we were trying to hit to get where we wanted to get. And then it’s about okay, well, here’s the last 12 months that have actions if we’ve done them, let’s re update the model. Where are we at, we’re behind where we fought, what new has popped up, what’s the next set of 12 month actions that we need to execute, and just enroll it on there. values don’t tend to change too much over time, unless there’s huge life changes that sort of come along with it. But it’s really just making sure that the actions that are having to be taken to generate the financial result are still worth the squeeze that we’re not missing anything fundamentally, that needs to get re put in, and just a rechecking on on things that they’re sort of unsure about. And what I find year on year, you start especially with the non CFO, a little bit more simple, a little bit easier understand over time, you sort of pick areas where you’ll dive a little bit deeper. And I sort of the explanation that I want to give is you’re never going to necessarily know your investment plan as well as I do intend to needed nitty gritties. But I want you to if someone if you’re asked at a barbecue in terms of how you’re running your money, you should be able to give a pretty solid answer as terms of what you’re doing, why you’re doing it and why it’s aligned with what you’re doing. And so that’s the kind of the standard that I want to continue to build with them. Because they even when they’re not with me, that filters through with the rest of their financial decisions. Yeah, absolutely, absolutely. And

Dean Holmes
it’s key that that giving a client, a little nugget of education, a small amount each year is so valuable to them, obviously, we know it all and are but to impart a small amount of knowledge each year is incredibly valuable to the to the client. And I’ve got one client in my mind that I did this to year in year out. And he was just happy that he learned something every single year when he came in and saw me as part of that as part of that journey. So that’s really good.

Pat Spenner
I was just gonna add on to what Mark said there around managing, you know, couples over the long term. And from a references standpoint, you know, what we, what we’ve seen in the academic data, is that preferences are pretty stable, for the most part over the long term. Right. Shahar will, you know, will often equate, equate risk preferences to your preferences and food, you’re not going to wake up one morning and you know, you like sushi one day, and you don’t like sushi, the next what, but preferences can change. So large macro economic shocks, life events, you know, these can inflect preferences. And so you know, to me, thinking about good hygiene of managing a healthy advice relationship with a couple over time means continuing to have those points where we talked about getting the independent read or like giving the prompt for each partner to sort of have a way of revealing, you know, what they’re thinking or feeling, how their values have changed how their preferences have changed. And because sometimes, you know, clients maybe won’t be able to tell you how a preference has changed. For example, if one of the partners is maybe feeling a bit of job insecurity, you might actually see that their loss aversion wouldn’t move up, because they’re a bit more fearful of possibility of losing their job, yet, they might be a little bit embarrassed to share that insecurity with an advisor. And so sometimes you can pick up in a routine preference measurement, how you know, what might be going on under the surface with with those preferences, that you’d want to sort of pick up on that and at least be aware of that. So it feels to me like, you know, there’s something to revisiting the preferences on an annual basis is kind of what we recommend using a method that can that can pick up that sort of thing, just to kind of stay on top of that much as your general practitioner would, you know, run your blood lab, or at least they do for me, right? I’m at the age where that’s an annual thing. And, you know, I want the confidence of seeing that and how my lipid profile is changing over time, right? Maybe it hasn’t changed at all in the last year, maybe it has but I want my GP to be able to take me through that and explain what’s going on there. And you know, if we need to get in front of something, let’s get in front of something. So So anyway, that’d be my comment on kind of the longer term view with a longer

Dean Holmes
term manage and that’s yeah, it’s all it all becomes a data exercise through that process so that if you as you build up a database of your you know your bloods or your heart rate or your risk tolerance and preferences we can see those changes over time but only when we zoom out and we look at 10 years worth of preferences for example, then we’ll really see some times when we got stressed along the way but yes, we will all like sushi if I like sushi today, I should like it in six months time. But my preference for worded as as in when I get older my change party if I’m not allowed to eat rice or something like that it is actually. So we’ve learnt a lot today, I think, for our listener in relation to this, this dynamic between couples. So thanks Mark for taking us through the real world example of having these conversations with couples. And I think we take away their resilience message in terms of when we do these profiles to make sure that clients had the resilience to get through the ups and downs and to see it through to the end. I’m I’m taking that one for myself, Mark. And then secondly, that that ripping off the band aid, I think, at the start of your conversations, just to call out that there are differences between the couple, which we know, but great to call it out, because then it avoids the awkwardness throughout that first meeting. So I think that’s a great way of starting on pot. Thanks for your time and detailing the research in terms of what capital preferences as has done. It’s all in the show notes and obviously on the website in relation to some detail there. But the great thing there, I think Pat was just focusing our effort on that the concept of the NPS score, and that how can we leave that is the element as we know of great customer service. But how do we do that is actually spending the time to understand the the preferences, having them revealed through this this process. And then frankly, just having a conversation about the results between the two couples between the couple so that we get a great outcome for them in the future. So thanks very much to you both. Enjoy the rest of your days. Thanks.

Pat Spenner
Thanks. Thanks Mark.