What advisers get wrong about investors

Investors are a diverse group — much more so than standard tropes might suggest — and this diversity has big implications for financial advisers, ranging from how they search for clients to the financial recommendations they make, according to a new report published by Morningstar Inc. "When you think about who an investor is, there's this common stereotype of an old, rich, white guy who has a subscription to the Wall Street Journal and trades stocks in his online brokerage and watches CNBC to get the latest hot tips," said Jake Spiegel, a senior research analyst at Morningstar and author of the report. "In reality, that's not what investors look like," Mr. Spiegel said. "They're a much more diverse group of people." More than half — 52.9% — of American households, and 61% of working American households, are invested in the markets, according to Morningstar's analysis of the most recent Survey of Consumer Finances, a nationally representative survey of American households. (More: It's past time for the wealth management industry to help the economically vulnerable) Within that group, there's considerable diversity — for example, about 26% of investors identify as being of something other than European descent, a quarter are under 37 years old and more than a third earn less than the $52,700 median income among all working households, according to the report. In addition, no more than 45% of investors work in "professional services" and related fields, which are stereotypically white-collar workplaces. That means at least 55% work in other fields, such as construction and mining, manufacturing, restaurants and public administration, said the report, "It's Time to Redefine 'Investor.'" For advisers, this diversity means they should "beware of guessing who might be a good client or what a client needs based on outward characteristics (age, ethnicity, profession)," which prior research indicates many advisers do, the report said. One way to avoid using such stereotypes: Write out the specific criteria that guide a recommendation and apply them to all clients, according to the report. The Morningstar report also underscores the value of personalized, individual advice, since investors aren't "single-minded" when it comes to their goals, it said.