What makes an investor a successful client?

A look at the winning habits needed to develop the right mindset
Tom Sedoric And Casey Snyder

We talk a lot about what an investor should look for in an advisor. Terms such as transparency (how does your advisor make their money?) or whether they are a fiduciary or a sophisticated salesperson come up in our discussions.

The attributes that make for a successful client, however, are often an afterthought, but they should be discussed and celebrated. Over the years, we have been honored to represent families who put in the diligent work to keep true to their plans, their goals and their sublime ability to ride market ups and downs.

If we had to break down these winning habits that contribute to a successful client mindset, we believe they would be:

• Financial curiosity, flexibility and, most importantly, adaptability

• Living within one’s means, especially when one’s circumstances change dramatically

• A strategic mindset that separates wants from needs

One of the more interesting study trends of the past 50 years has been the rise and study of behavioral economics. Put simply, in classical economics the system works best when people are supplied with ample information to make rational economic decisions for themselves or, for example, the companies they run.

The result since the dawn of the 20th century has been an increasing mathematization of economics to explain in ever more complex theorems why economies work as they do. A majority of us find these baffling, and rightly so, as though we might walk into work someday to find Sanskrit the only form of communication.

Behavioral economists inject psychology into the equation. Financial and economic decisions are not mathematically cut and dry, and often reflect our aspirations, strengths, weaknesses and biases. Financial advisor and columnist Rick Kahler believes many of us work from conscious or subconscious “money scripts” that can drive our financial decisions.

“We memorized these scripts until we internalized them and had them down perfectly. Like an actor’s lines, they work perfectly in the right setting or play. But try that same script in a different play, and the result is chaos and confusion,” Kahler has written. “Money scripts cause problems in our lives when they drive harmful or self-sabotaging financial behaviors.”

The encouraging news is that we can write our own positive scripts. We have seen the traits cited above be part of successful portfolios that were forged by a mindset of discipline and self-reliance:

• Flexibility and adaptability: Markets go up and down, unforeseen medical crises happen, and external events can and do challenge us and our plans. But the clients who have the most fulfilling lives tend to take these “curveballs” in stride, in part because they have planned for them — if not in exact detail but in broad outlines. They pull back from spending or increase their savings as they adapt to new situations. In our view, this adaptability mindset is as important as portfolio strategies for reaching one’s financial goals.

• Living within their means: The myth of “keeping up the Joneses” was a byproduct of a post-World War II era of seemingly limitless national economic growth and opportunity. The consumer society was thus born and remains to this day. But making more money need not lead to spending more or to ignore foundational budgets altogether. How we handle income is no easy task, and it’s also rarely taught growing up or in a college classroom.

• A strategic mindset: Spending money is inevitable, but how we spend it — especially discretionary income — speaks volumes. For example, if we are determined to buy a new house in a year or a new car in six months then we become hostage to a self-imposed deadline of want than, perhaps, of need. A foreign vacation can be quite healthy and invigorating, but a strategic mindset sees how a strong dollar offers opportunities and that a competitive marketplace offers a wide range of deals that don’t break the budget.

Thankfully, this isn’t rocket science. We are not born with this mindset, but we do have the gift to create our own to meet financial goals. Each trait reinforces another as a solid foundation does to a home. We believe it is built not by a great leap but with many small steps practiced daily that positively compound like interest.

Tom Sedoric is partner, executive managing director and wealth manager and D. Casey Snyder is partner, senior vice president and wealth manager of The Sedoric Group of Steward Partners in Portsmouth. They can be reached at thesedoricgroup.com.

Categories: Banking and Finance