Written by: Souki Fournier
Today’s modern investors are more informed than ever before. From financial publications and blogs to social media, fintech apps and more, there is an abundance of information available at their fingertips. Around the time they decide to reach out to a financial advisor and start getting serious about investing, they’ve probably made up their mind on how they want the process to go.
The good news is, you can foresee that this investor will be engaged during your work together. The lesser good news is, throughout their research and financial readings, they may have picked up some widespread myths that could affect their decision-making process.
These are the top 5 investing myths and misconceptions your clients probably believe are true.
Myth 1: The stock market is 100% predictable
Although many veteran investors and stock trading influencers might disagree, nobody actually knows what the market is going to do. As you know, predictions can be made, but timing the market is extremely difficult.
This is a myth that your clients might believe is true, especially since the beginning of the pandemic era and all the emerging financial influencers and Tik Tok traders predicting what the market is going to do and what stocks are worth investing in.
Myth 2: Investing is like gambling
The most captivating success stories your clients might have heard of are those of people who started with little capital and became wealthy overnight. Thanks to investing in the right stock at the right time.
It would make sense for some people to believe that investing is comparable to gambling. After all, both involve risking capital without knowing the outcome for certain. However, the major difference between the two is that gambling is about having somebody win and another lose, investing is about making a profit and building wealth over time. Which is what makes a financial advisor’s role so crucial. With your expertise, investors can actually build a long-term strategy inclusive of their financial goals and quality of life.
Myth 3: Financial advisors are just trying to sell products
All it takes is one bad experience and an unhappy client for a profession to get a bit of a bad reputation. Financial professions included.
The truth is, the bad experience might be a mere miscommunication or confusion on how things work. As you know, there are several different models for the way financial professionals are compensated and the services they provide. Some charge an hourly rate or a flat fee, others are paid a commission when selling certain products.
Educating your clients on the services you provide and the compensation format will not only debunk this myth, it will also manage their expectations and make them engage with you more. Communication is key here, never assume.
Myth 4: Men make better investors
Can you take a mental inventory of all your investors? How many of those are women? Did you know that only 48% of women currently invest in the stock market, compared to 66% of men?
While women have historically taken a backseat to the men when it comes to finances, research shows that they are better investors. Today’s female investors are more informed and have been educating themselves on smart investing.
This myth is particularly relevant to financial advisors who manage portfolios for couples. Many make the mistake of addressing the man during the conversation assuming that he is the main decision-maker. While the key is engaging both partners. A great tool you can use is our comparison report that provides you with a detailed profile for each of your investors.
Myth 5: Investing is a way to get rich quick
I have 3 words for you: meme stocks and cryptocurrency. To the unobservant eye, it seems like investors are becoming rich overnight. With the boom of meme stocks and cryptocurrency, social media is flooded with various “get rich quick” tutorials.
Realistically, it is very hard to get rich from these speculative assets. So whenever you recommend to your clients that they keep their allocation to risky assets to just 2% or 5% and focus on a long-term financial plan, they might bring up a crazy success story they read online.
Being able to identify the type of client that believes in a “get rich quick” is crucial if you are going to manage their portfolio.
The answer: Behavioral Finance
There is one way and one way only to debunk these myths and build a solid foundation for your client work: you need to get to know your investors on a much deeper level.
2022 is not the year for you to make them fill out a questionnaire to speculate whether or not a mere Elon Musk tweet can make them reconsider their whole portfolio. This is the year of empowering your workflow with behavioral finance.