It’s no good screaming at your clients if they make dumb decisions. As a financial advisor, you need to stay on top of things. What’s your strategy to manage clients during market shifts? Some clients tend to make some very strange decisions when it comes to how they react to market movement and managing their money, not to mention taking advice from ‘friends‘.
If clients, for example, follow the herd and make irrational decisions regardless of the advice you give them, it will help you to understand behavioral finance to reveal core behavior and how to address it. If you don’t you will crash and burn as a financial advisor and be surprised by their actions and reactions.
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Regardless of great financial advice, sometimes clients have a tendency to follow each other into precarious financial situations. They make foolish decisions and then expect the financial advisor to help them correct them.
Madison is a high income earning young professional. She leads a busy life and has just been promoted to a senior role meaning she has even less time to manage her money. She has always managed her finances successfully and has her own investment portfolio. She retains a financial advisor and makes it clear that she wants to continue to grow her portfolio but with low risk.
Madison is a very smart woman and somewhat reserved. In the busyness of her new position, she allows a group of outgoing vocal colleagues to persuade her to invest in a high-risk opportunity. Madison loses a significant amount of money.
As soon as the financial advisor is informed about this issue, she profiles Madison. She needs to understand how this smart intelligent woman could have been drawn into making such a foolish decision.
Having established Madison’s financial personality, the financial advisor is now able to provide Madison with insight into her decision-making behavior. Going forward, the financial advisor will be better able to manage Madison’s emotions and decision-making by customizing a financial plan to make improved long-term investment decisions.
Had the financial advisor known Madison’s financial personality up front, disaster could have been avoided.
Independent research shows that 93.6% of your role is the behavioral management of clients.
Source: Professor Meir Statman 2000.