Each quarter we publish the Anchor Strategy and Asset Allocation report. Our private client business is responsible for ensuring that our clients’ experience of this is pertinent to them – meeting their specific investment needs, objectives and constraints in much the same way as a financial adviser would. Whilst it is important that everyone’s personal quantitative asset allocation falls in line with a general strategy, it is also critical that it suits their individual return and risk profile from a qualitative perspective.
But, how is this behavioural personal profile determined?
Financial behaviour tends to be more emotional than rational and, as with the rest of an individual’s actions, is a deep-rooted expression of internal psychology. So, get to know your client’s psychology, especially around money. As a start to this conversation, questions about their childhood are very useful.
Ask, “What is your earliest memory of money?” It might sound like a strange question but as acclaimed personal financial expert, Suze Orman says, “It’s amazing how much the mind can play a role in creating or destroying financial freedom. These money memories have such a hold on our lives—they directly impact how we deal with our money or we don’t deal with our money.” How we consciously or subconsciously behave is thus significantly impacted by our childhood or our memories thereof.
We find this question and the varied answers particularly interesting and thought-provoking – maybe since we spend all day, every day, surrounded by money and its impact on the world around us.
As an example, one of Anchor’s portfolio managers recollected the following as one of her earliest money memories:
“Just before my 10th birthday, our family went to Disney World, Orlando. Obviously, I have so many memories of this trip, but one of my favourites is of us sitting in a supermarket parking lot, breaking bread. For lunch daily we would enjoy fresh chip rolls washed down with a cold Game sports drink. My mom had packed Game sachets in our suitcases and would prepare and freeze bottles of juice every evening for the next day. We did not eat the overpriced food and drink in the parks, but we still experienced the Disney magic (and the occasional ice-cream or treat) thanks to months of planning. This experience was repeated in my adult life last year with an unforgettable three weeks in Scandinavia with my family. It was only made possible thanks to extensive planning, detailed budgeting and, true to tradition, packing snacks in suitcases and surviving on squashed rolls wrapped in serviettes.“
The importance of money in our lives is true for everyone, the reason for it being so is different. Reflecting on money memories often helps people understand their relationship with money – from both a positive and negative perspective. Relating this back to the example, my colleague learnt that if something is important to her (such as travel) she is happy to budget and sacrifice non-essentials for the overall experience. On the negative side, she often restricts herself completely by budgets and, if any unexpected expense has to be incurred, she panics and is many times unable to enjoy an experience for what it is or to live in the moment.
Financial integrity encompasses understanding why people manage money in the way that they do and feeling competent to either continue in that manner or make the necessary changes. We have found it’s worthwhile taking a trip down your client’s money memory lane – exploring their earliest money memory and then linking this memory back to current behaviour.