Although a client’s personality strongly influences how that person invests and feels about his or her financial decisions, financial advisors who engage clients in the investment process can also sway that individual’s overall confidence and understanding of investments, according to the British Columbia Securities Commission’s (BCSC) Smarter Investor Study, which was released on Tuesday.

“Advisors have a very key role in encouraging good investment behaviour from their clients,” says Paul Bourque, executive director of the BCSC

Canadians who invest with an advisor ranked 70 out of a 100 on the smarter investor index compared with the 62 by Canadians who don’t have an advisor. The index measures how respondents feel about five issues: whether they knew their investment goals, were confident their investments were suitable, understood the investments in the portfolio, and if they felt confident when making investment decisions.

A client’s personality typically dictates his or her investment behaviour and initial engagement level with an advisor. For example, study results show that 77% of confident investors conduct a background check on an advisor before deciding to work with him or her. Similarly, a third of impulsive investors never ask an advisor about how he or she is compensated.

The study identifies five personality types: confident, diligent, impulsive, reserved and tumultuous. Knowing which type they fit into will help clients know their strengths and weakness as investors and to hopefully change their behaviour accordingly, says Bourque.

“We’re not saying you shouldn’t be impulsive or [should] be an impulsive investor,” he says, “but recognize the weaknesses and try to fill in the gaps.”

By engaging clients in the investment process, advisors can help them overcome their weakness and improve their investment behaviour, says Bourque. For example, advisors should encourage clients to ask questions, make sure clients are comfortable with the risk they’ve taken on and that they understand the fees they’ve paid. How an advisor broaches these topics or encourages clients to be more engaged will depend on the client’s personality.

“We have a well understood regulatory framework of rules that’s in place,” says Bourque, “but it’s really important for investors and advisors to understand their behaviour and to adjust the experience to the kind of person that [they] are and the kind of person that [they’re] dealing with.”

Clients can identify their investor personality type through the smarter investor quiz on the BCSC’s website (www.investright.org).

But while advisors are the main driver of client engagement, investors themselves do understand that they need to take on at least a little responsibility themselves. For example, 76% of survey participants said they were responsible for asking questions of their advisor while 40% said they felt it was their responsibility to do independent research.

Other key findings from the study include:

  • Thirty per cent of Canadians 35 and older invest with an advisor but more than half are not sure what they pay. Less than one in five know how their advisor is paid or have never asked about compensation
  • Six in 10 Canadians who invest with an advisor say they always read their statements
  • Of the 46% of Canadians who did a background check on advisors, 53% said they checked the advisor’s registration
  • Of the 70% of Canadians 35 and older who do not invest with an advisor, 19% identified as a do-it-yourself (DIY) investor. Another 52% said they don’t have any investments.

Innovative Research Group Inc., which has offices in Toronto and Vancouver, conducted the research for the BCSC study in August 2015. Results were gathering from 2,407 online surveys of Canadians aged 35 and older.