Financial Advisors: Behavioral Finance is Not Psychobabble

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.

Source of photo: Google Images. Businesswoman_Stressed_MI600.jpg www.thinkadvisor.com600 338Search by image Emotional Decision-Making

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.

About the Author

Carol Pocklington

Carol Pocklington - Chief Insights Accelerator

Carol is a Human Performance Accelerator. She has worked with Hugh Massie since 2001 since the Financial DNA understanding concept was conceived. She works with people and businesses worldwide. Her real-world application of behavioural insights, gives her the capability to serve as a business strategist, coach, mentor, and trainer. She is also a prolific blogger, a public speaker and author, specializing in human behavioural insights.

Carol's DNA Natural Behavior Style is - Facilitator

Carol is a Facilitator. Facilitators are persistent, goal-oriented people who promote team effort in order to complete tasks. Facilitators lead by setting examples and by achieving goals. Their strong work ethic encourages others to excel and they have an excellent ability to deal calmly yet firmly with people using a facilitative style.