To the uninitiated, it might seem that a wealth advisor’s most valuable asset is raw intelligence (IQ). Many believe the primary objective of a wealth advisor is to structure an investment portfolio that achieves optimal risk-adjusted returns, where more is better, and mastery of the stock market is paramount.
While IQ plays a significant role in wealth management—portfolio management forms the foundation of financial plans—it is not the ultimate goal. Over the decades, I’ve learned that the true purpose of wealth advising is not merely to help clients accumulate more wealth. Instead, it is to assist them in using their money purposefully, to understand what truly matters to them, and to align their finances with meaningful people, values, causes, and goals.
To grasp a client’s purpose, wealth advisors must delve deeper than technical issues like alpha, beta, and standard deviations. They must navigate the realm of emotional intelligence (EQ).
Emotional Intelligence in Wealth Advising
My early experiences in wealth management illustrate this point. In 1998, I accepted a role as Founder of Fleet Bank’s Wealth Strategies group, advising high-net-worth clients in an integrated fashion. Transitioning from a background at J.P. Morgan, where technical accuracy and structural integrity were paramount, I anticipated a similar focus on hard skills.
However, my first meeting with a high-profile client—a Vice Chairman of a publicly traded company—was an eye-opener. Instead of discussing technical financial details, our conversation meandered through personal topics: his psychiatrist, marriage, children, dreams, and hopes. This three-hour discussion, far from the expected one-hour technical briefing, left me bewildered.
Initially, I dismissed it as an anomaly. But I soon realized that these personal conversations were not exceptions; they were the norm. My background in law, investment banking, and financial structuring emphasized efficiency and financial bottom lines. However, these unstructured, emotionally charged discussions became a recurring theme in wealth advising.
I learned that wealth advising begins with understanding what lies beneath the surface. It involves answering why before how.
- Why are you working so hard when you don’t need more money?
- Why are you generating this level of income— for what and for whom?
- Why does inherited money provoke fear and anxiety, even if you’re comfortable with your own?
- Why do you want that boat, car, apartment, or house?
- Why do you not realize that spending $500,000 a year from a $2 million portfolio is unsustainable?
- Why, with $20 million in the bank, do you sweep floors yourself instead of hiring help?
By focusing on these “softer” aspects, I realized that emotional intelligence is not the opposite of intelligence, but the intersection of both, as David Caruso aptly said. Understanding people is far from cut-and-dry; it requires empathy, active listening, and the wisdom to challenge appropriately—hallmarks of EQ.
EQ in Practice
Emotional intelligence leads you to a client’s purpose—their why. Only then can you proceed to the how: investment planning, estate planning, family governance, tax optimization, philanthropy, and more.
3 Tools for Developing EQ
- Ask “Why?” and Don’t Judge: Instead of reverting to technical jargon when confronted with confusion, meet these situations head-on to nurture empathy and develop EQ.
- Read, Read, Read: Books are powerful tools. They offer curated thinking on life, expanding both heart and mind, making you a better emotional and intellectual sounding board for clients.
- Treat Perceived “Irrationality” with Empathy: Often, we judge irrational behaviour to distance ourselves. However, everyone exhibits irrationality at times. Judging only hinders understanding and decision-making.
What Matters Most
One client’s words epitomize the importance of EQ in wealth advising. During a portfolio review, she said, “Randy, I couldn’t care less about the stock market. Just answer me one question: Are my children and I okay?”
Different clients desire varying levels of technical detail. However, this question underscores the essence of EQ in wealth advising. My role is to provide clients with peace of mind, ensuring they and their loved ones can live free from financial anxiety.
Picture Cred: Seeking alpha
This article was written by Randy Kaufman via Wealthspire Advisors