Investor education is about the investor, not investments. Far too much emphasis is placed on informing clients about investments and very little on what the client needs to know, according to Charlotte B. Beyer, founder and CEO of the Institute of Private Investors and founder of New York-based Investor Education Collaborative.
“The ultimate purpose of investor education is teaching clients how to think, not what to do,” she told the audience at the Strategy Institute’s 12th annual Marketing Wealth Management Services to High Net Worth Individuals Summit.
While it may be argued that the ultra-wealthy have easier access to superior advisors, Beyer believes that revamping investor education will benefit all investors, not just the wealthiest.
“The jug-to-mug approach to financial education doesn’t work; it needs to be back and forth,” said Beyer referring to the teacher-student like relationship between advisors and clients which typically lacks interactivity. “There is no boss in that Next Gen training; rules don’t always work for Next Gen.”
It’s not the ability to know the right answer, but the ability to ask the right questions which must be the basis of investor education, she added.
“Teach me how to think, not to just recite what you just told me.” In wealth management that translates into “teach me how to partner with you.” Listening to investors could go a long way in building trust, Beyer said. “The client has to trust that you are really listening to them.”
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She used the doctor-patient analogy to illustrate the importance of trust and how “horrendous” its absence could be. “Imagine going to a doctor when you’ve got a serious disease and not knowing whether you can trust what he’s telling you.”
For many investors, this is the state of the financial industry. Oftentimes investors are unsure of what their financial advisor means, and are left asking “how do I know they’re telling me the truth?” and “how do I trust but verify?”
Clients must be assured that there are no surprises, she said. Advisors who address these concerns are rewarded with a far more loyal client, she added, who are going to “enthusiastically involve their spouse and encourage their children to get involved with you, because you’re not going to bore them to tears.”
Beyer likened investor education to Driver’s Ed. “Investors do not need to know how to build the car in order to drive it,” she said, explaining that clients learn best by doing. “The problem is that the Next Gen is afraid the advisor is going to insist that they learn how to build the entire car.” To many of this generation, investor education is like having to look under the hood, when all they want to see is the dashboard.
“Putting them behind the wheel”, therefore, is a good way to engage the younger generation and letting them experience investing, she said.
(10/28/10)