Advisors can make clients feel wealthy without growing assets says TD Wealth

Ask an average person what ‘being wealthy’ is and they pick an arbitrary sum such as a million dollars, but if that is the magic number, does a millionaire therefore feel wealthy?

What being wealthy feels like is subjective but new research from TD Wealth aims to quantify it to some degree using the power of behavioural finance. The study only considered affluent and emerging affluent Canadians and cannot therefore be applied to the mass population.

A simple one to start with: whether having money makes you feel wealthy. The study says yes, with some exceptions, but money is not the only way a wealth professional can make a client feel wealthy. Estate planning, for example, can also do this without having a material impact on assets.

Traditional research on Subjective Financial Well-Being (SFWB) over the past fifty years or so has been focused on affordability of a lifestyle, but the TD Wealth study defines what it calls Wealth Confidence and adds factors such as emotional and cognitive aspects, wealth relative to peers, and consumer sentiment.

Personality traits play a key role in how wealthy someone feels, and the study found that three of these - reactiveness, extraversion, and conscientiousness – play a bigger role in their Wealth Confidence than investable assets and household income combined.

So certain traits can make a rich person feel less so and vice versa with reactiveness the most influential; the most reactive people are more likely to have low Wealth Confidence.

Assets, income, and debt

Interestingly, the study found that Wealth Confidence increased in study participants until they reach assets of $3.5 million, then it starts to decline.

Income shows a similar paradox with confidence increasing until income reaches $200,000 per year, then it declines.

Conversely, a higher level of debt weakens confidence up to $50,000 but after that there is a period where debt (to grow wealth) boosts confidence, before it falls again after $100,000. There are some exceptions though.

Advisor advantage

Wealth Confidence is also boosted by working with a financial advisor according to the research.

Those working with an advisor and with high Wealth Confidence are three times more likely than those with low confidence to be confident in their advisor’s ability, four times as likely to be satisfied with their advisor, and seven times more likely to say their advisor is worth every dollar.

The report concludes that demonstrating the added value that you bring as an advisor is vital to ensuring that wealthy clients feel wealthier through working with you. This can include being proactive in discussing wills, philanthropy, and wealth transfer planning.

The full report is available at TD.com