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Client Engagement

How Can Your Clients Use New Tools to Reach Investment Goals?

Key Takeaways

  • Investor goals consistently include building a safe and secure retirement, owning a home, paying for children’s education, and building both lifestyle and legacyhowever, consideration is often neglected when publicizing the strengths of new tools.
  • The potential of new tools is clear, but some evidence suggests investors may be using these tools in a way that inhibits progress towards their investment goals due to poor choices driven by behavioral biases.
  • Our research calls on the industry to reframe our focus from the potential capabilities of every new tool to how new capabilities can help a person realize their financial goals.

Read Time: 4 Minutes

The investing landscape is rapidly evolving. And with that change comes the onslaught of investment tools. Yet, many financial advisors have failed to consider how investors are managing these new capabilities.

Are your clients engaging with tools in a way that will help them truly reap the benefits?

While investors can benefit from more investing opportunities, these tools may increase their vulnerability to behavioral biases—leading to financial mistakes. To help your clients overcome this challenge, it’s crucial to understand the relationship between them, their long-term investment goals, and new investing tools. We identify how the changing environment simultaneously presents advantages and pitfalls to investors.

Download a copy of the full research paper here.

A Look at the Landscape

The tools for investing are evolving quickly. Still, clients may be struggling to keep up with this shift. From cryptocurrency to online trading platforms, investors must grapple with what these developments mean for them.

Yet people have the same investment goals as ever: to build a safe and secure retirement, to own their own home, to pay for children’s education, and to build both lifestyle and legacy. However, these goals may be neglected in consideration of new tools. As an advisor, you have the ability and expertise to identify a connection between the benefits of these tools and your clients’ specific goals.

Here’s a closer look at how people are engaging with investing tools.

How Are investors Benefitting From New Tools?

The potential of tools is clear—and some investors are taking advantage of these innovations to build a future that aligns with their values.

Opens new doors

New innovations may be helping investors confidently move towards their investment goals. Online trading platforms, for instance, have provided a lower barrier of entry for potential investors. Plus, these systems are attracting younger investors along with more minority investors.

This finding suggests that online trading platforms engage new investors and encourage them to explore a variety of asset classes and strategies.

Encourages long-term thinking

Some investors are connecting new tools to their financial goals. In fact, more than half of crypto investors report their interest in the asset was motivated by their desire to make good long-term investment decisions.

In other words, there’s a group of investors who believe these new tools can support their goals.

Improves personalization

A growing number of people recognize these tools may help them use their money in ways that reflect their needs. This personalization can be powerful—and especially attractive if investors can identify how the capability can bring them closer to their goals.

Through personalization, investors can create a financial plan that fits with their values, interests, and goals.

What Pitfalls Need to be Avoided?

On the other hand, investors may be engaging with new tools in a way that inhibits progress towards their financial goals due to various obstacles like behavioral biases.

Knowledge gaps

When investors fail to connect tools to their goals, they may undervalue these innovations. For example, direct indexing is becoming widely available thanks to growing technology—yet knowledge gaps can prevent some investors from recognizing all direct indexing has to offer.

By guiding your clients on how tools can serve their investment goals, it can be easier for them to make better financial decisions.

Overload of choices

It’s important to note that investors aren’t always translating their interest into action. Suppose that investors may want to inform their investment choices with ESG data but struggle to get started. One possible explanation is they might face choice overload—where a person feels overwhelmed by options and therefore resorts to using a simple rule of thumb to make a choice.

But the solution isn’t to provide more details. Rather, advisors need to help investors understand what available information may mean for them and how to translate their preferences into high-quality portfolios.

Tendency for mistakes

Easy access to online trading tools can cause clients to make well-known mistakes. For some, recency bias—the likelihood to overweight recent events—can lead investors to make a trade because they thought it would lead to more money because the asset did well recently.

Thus, these tools have reduced guardrails that have once prevented investors from acting on biases. To use new innovations in a more productive way, advisors must work with their clients to manage judgements and decisions made from gut reactions.

Guide Clients to Success

The evolving financial landscape offers a variety of tools for investors. By understanding your investors’ needs and how they use new innovations, you can help clients veer away from making mistakes based on their biases—and reach their unique investment goals instead.

With Morningstar Advisor Workstation, it can be easier to clearly communicate your investment advice. The robust platform allows you to create strategies that match your investors’ objectives and deliver decisions backed by detailed data.

Request a demo today.