For Financial Professionals in the US

How clients’ personality traits can influence bequest decisions

Head of Defined Contribution and Wealth Advisor Services Matt Sommer discusses the results of a study he conducted on the relationship between parents' personality traits and leaving unequal bequests to children.

Matt Sommer, PhD, CFA, CFP®

Matt Sommer, PhD, CFA, CFP®

Interim Head of Specialist Consulting Group

Aug 15, 2022
6 minute read

Key takeaways:

  • While most financial professionals are used to managing a wide range of client personalities, less consideration is given to how clients’ temperaments influence their financial behaviors.
  • To explore this relationship further, our study focused on how parents’ personality traits influence their decision to leave unequal bequests to children.
  • The findings can be used to counsel clients regarding the potential implications and considerations of dividing an estate unevenly.

A financial professional’s role is just as focused on relationships as it is on finance – perhaps even more so. Managing those relationships often entails modifying our approach based on different personality types. After all, the way we interact with gregarious extroverts is inevitably much different from how we engage with more introverted clients (or at least it should be if we expect the relationship to be productive).

While most financial professionals are attuned to this oftentimes delicate exercise of managing a wide range of personalities, less consideration is given to how clients’ temperaments influence their financial behaviors. This is arguably a link worth investigating, as any insight an advisor can gain into what motivates an investor’s decision-making process is valuable.

Given that prior research on this topic is limited, I initiated a study with fellow researchers from Kansas State University to explore it further. The study focused on the relationship between parents’ personality traits and leaving unequal bequests to children. The results, published in Financial Planning Review in June 2022, uncovered some findings that financial professionals can draw on to better understand how their clients’ personalities may play a role in their wealth transfer intentions.

The five-factor OCEAN model

To define the personality attributes included in the study, we used the five-factor “OCEAN” model, which is one of the most widely accepted frameworks for this type of categorization. The model identifies the following distinct personality traits:

  • Openness to experience
  • Conscientiousness
  • Extraversion
  • Agreeableness
  • Neuroticism

As expected, the results found that conscientiousness was negatively associated with unequal bequests, while extraversion was positively associated with unequal bequests, although the effect sizes were small. The surprising finding, however, was a positive relationship between agreeableness and unequal bequests. Agreeableness also had the largest effect size among the five personality traits studied.

Putting the findings to use

Understanding how personality traits may inform a client’s decision-making process regarding the division of an estate among multiple children may provide financial professionals with valuable insights. These insights can be used to counsel clients regarding the potential implications and considerations of dividing an estate unevenly among their children.

Following are a few scenarios that demonstrate how this might be put into practice.

For clients who display low levels of conscientiousness, financial professionals can help these individuals better anticipate the implications of unequal bequests. For example, an advisor might suggest the client imagine a scenario immediately following his funeral in which one of the children first learns she will be receiving a smaller inheritance compared to her siblings. The advisor might ask the client to think about what he would say to that child, and perhaps suggest taking steps to proactively share that message. ‘

One option is to hold a family meeting where the client can share the provisions of his will, explain the reasoning behind his decisions, and solicit feedback and questions from the children. Another option is to provide the children a letter to be opened following the parent’s death to share these sentiments. Regardless of the method chosen, these approaches offer an additional opportunity to ensure the client reinforces the message that the size of each child’s inheritance is not a reflection of varying levels of love or affection.

Clients who display high levels of extraversion present a different challenge. These clients may be extremely confident in their ability to manage potential conflict between themselves and their children. The blind spot, however, may be that the client is underestimating the potential for jealousy and conflict that could result from unequal bequests.

Financial professionals can probe further to determine the present relational dynamics among the children, how they approach and settle disagreements, and which children, if any, may react with hostility toward their siblings upon receiving a smaller inheritance. To facilitate varying inheritance amounts while potentially avoiding conflict, an advisor might suggest lifetime gifts. Unlike a will, gifts are private and may be made discretely to a recipient. Clients who are motivated by lifetime gifts to keep their wealth transfer plan secret, however, should be reminded that an open and transparent approach may be more beneficial in the long run.

For highly agreeable clients, the intention to leave unequal bequests may be an indication that the children are competing for a larger share of the estate. Children may recognize their parents’ reluctance to say “no” to avoid causing disappointment. As a result, some children may be actively lobbying their parents for a larger inheritance compared to their siblings. In these cases, an advisor might inquire further about the client’s motivation for unequal bequests.

If it appears that the children are influencing their parent’s bequest intentions, then the advisor might wish to discuss a common pitfall in wealth transfer planning: moral hazard. When children know they can influence their parent’s decisions regarding gifts and bequests, they may fail to exert sufficient effort to increase their human capital, which may increase the need for financial assistance. Children who are able to successfully solicit the assistance needed from their parents are therefore incentivized to commit even less investment in their human capital.

Clients in this situation should be educated about incentive clauses commonly found within trusts documents. These clauses facilitate the transfer of wealth to children, but only upon reaching certain milestones such career advancement or life events such as marriage.

The Importance of Understanding Clients’ Personality Types

While the scope of this study was rather narrow, it’s important to note that the findings can be applied in a broader context. Simply having the knowledge that certain personality traits can impact how clients approach bequest decisions can help us understand how those traits might influence other investor decisions and behaviors. It also serves as a reminder of how important it is for financial professionals to be attuned to their clients’ distinct personality types. Knowing what makes our clients “tick” is critical to connecting with them, anticipating their needs and securing their trust – all of which form the foundation of a productive relationship.