Any investor who has worked with a financial advisor knows the drill. Before devising an investment strategy, you first have to answer a series of standard questions about factors such as your life stage, level of investment knowledge and risk tolerance.
But these questions don’t cover some other factors that can be important in coming up with a strategy well suited to your needs. Standard Life has launched a new online tool designed to gauge these other factors, such as how confident you are about the state of the economy and your personal finances, how actively involved you like to be in your investments and what’s holding you back from investing more. Investors can use the tool whether or not they use a financial advisor, and whether or not they are Standard Life clients.
It takes about five minutes to answer 13 questions focusing on the investor’s confidence in the economy and their own situation. These responses are then crunched with Environics Research’s Social Values Monitor, a long-running study of social values, to determine which of five investor types the investor fits in. The types are:
Sophisticated Investor: These 15% of Canadians are highly educated, driven, confident and determined to reach their financial goals. They are the most likely to hold a wide range of investment vehicles.
Confident Accumulator: These 23% of Canadians are educated and white collar, very goal oriented and optimistic, highly engaged in their finances, and seek to bequeath a financial legacy to their children.
Contented Passive: These 21% of Canadians are slightly older than average, semi-professional workers with secure jobs. They earn average incomes and consider finances a daily chore, and they’re more likely to understand the basics of investing but only look at their investments from time to time.
Cautious Analyzer: These 20% of Canadians are often stressed and feel squeezed for time, have limited knowledge of their finances and don’t enjoy monitoring them, and are very concerned that they won’t have enough money to retire on.
Concerned Investor: These 22% of Canadians have less education and lower-income jobs, very little savings and rely on friends and family for advice. Managing their finances makes them very anxious, so they avoid it at all costs.
The investor then receives a one-page profile detailing their mindset, and if they wish they can click to share this with their financial advisor. Jennifer Gregory, national VP business development, group savings and retirement at Standard Life, says the insights in these profiles give financial advisors a deeper understanding of a given client’s mindset—and more quickly. She advises that you sit down with your advisor to discuss the profile, and you can even review your answers to the individual questions. And investors who work without a financial advisor also gain a greater understanding of their own investment mindset that helps them craft an approach right for them.
David MacDonald, group VP, custom/financial at Environics, says most entrepreneurs fall into the top two categories. But, he says, just because you run a business doesn’t mean you’re highly confident when it comes to your personal investments. “I spoke with one financial advisor who had a client who had just sold his business for $1 million,” says MacDonald. “But this entrepreneur was so paralyzed by his fears about investing this money that he had left it all in GICs.”
MacDonald advises business owners to ask their spouses to fill out the online survey as well. He says you may learn that you and your spouse have significantly different mindsets about investing—ones that you should take into account when designing your investment strategy. “Are both spouses equally sophisticated investors?” he asks. “There may be conflicts that an advisor needs to mediate.”