The Fast-Paced Realist

This post is part 5 of our 10 part series on Financial Behavioral Insights from our Financial Performance in the New Behavioral Economy White Paper. The financial behavior insights will help you gain greater self-awareness for recognizing some of your own behavioral tendencies and also those of investors.

Behavioral Insight 5: The Fast-Paced Realist

Max is a 62-year-old senior corporate executive who is used to making difficult decisions. Some colleagues call him Merciless Max for his ruthlessness about numbers. His view is that forecasts have to be met every quarter and a bottom line number delivered. Predictably, Max believes that the same approach should be adopted with his investments. He looks at the portfolio quarterly and makes the tough decisions that are needed to keep the portfolio in line. He calls this re-balancing. At times, however, his rational focus may mean a short-term swing is mistaken for a long pattern, and therefore too much pruning goes on.Client Behavior, White Paper, Financial Planning Performance

Behavioral Insight
A naturally logical and challenging person will be a Fast Paced Realist who is able to make very rational decisions without getting stuck but may be too impatient for returns.
Communication key: Provide the bottom line results and keep the discussion quick.

Max is your classic Fast-Paced Realist who generally knows when to sell winners and cut his losses. Fast Paced Realists do not have an aversion to taking losses. They are rational enough to see that at times selling losers instead of winners needs to happen even if it is embarrassing or causes short-term pain. They will act decisively and move on without getting too emotional when making hard decisions. Further, unless they have been misled by an advisor, Fast-Paced Realists will generally take responsibility for their decisions and not act like they have been burned because it has all gone wrong.

The struggle for the Fast Paced Realist is that their more aggressive results focused nature can lead them to heavily trading the investment account. Also, their natural lack patience may cause them to sell investments too fast because of a market blip. Therefore, the risk is they may sacrifice what is a good long-term investment for short-term results.

An advisor who is a Fast-Paced Realist has the logical strength of being able to help their client make rational decisions. Although, the struggle will be that whilst providing the rationality they may not recognize the clients feelings about the situation and the decisions to be made. Further, advisors who are Fast?Paced Realists would also be more likely by nature to over trade or churn their clients investments.

Learning Point:

Fast-Paced Realists need an advisor to help them with re-balancing their portfolio on a regular basis to maintain diversification, and in doing so show them the long-term investment fundamentals before short-term decisions get made. Ask the client: How do you approach making difficult investment decisions? What type of performance are you expecting on your investments?

What are your thoughts? For additional information on discovery through behavioral profiles, click here.


Framing: Re-frame the Presentation of Ideas and Suitable Solutions

This post is part 2 of our 10 part series on Financial Behavioral Insights from our Financial Performance in the New Behavioral Economy White Paper. The financial behavior insights will help you gain greater self-awareness for recognizing some of your own behavioral tendencies and also those of investors.

Behavioral Insight 2:? Framing

Chris, a financial advisor, has invited 20 clients with similar levels of wealth and age to his office for a lunch and learn presentation by Paul Southwick on a new investment strategy. The new strategy is to provide a mix of dividends and capital growth with some downside protection. Chris has vetted the investment and believes it will fit his clients well. Paul uses a PowerPoint presentation with great content in it about the bottom line of the investment and is an articulate presenter. As he goes through the presentation there are clearly some who get it and want to sign up, there are others who are totally confused by the details and switched off, others who want to do more research and some who need to understand how it meets their security needs. After the lunch Chris is very concerned about the mixed reaction and losing client trust. He knows the product is sound and he will invest personally.

Behavioral Insight
The difference between what the advisor said and what the client heard will be attributable to the behavioral lens of each. The communication of products and solutions must be adapted.

Framing, financial advisor, customizing the message, customized experience, client engagementHave you ever attended a presentation like the one Chris arranged and been de-energized, bamboozled and confused by the investment proposal and not responded? Understanding investors learning styles and propensities for receiving information, new ideas, strategies, products and solutions is critical to successfully presenting to them. This will increase the chance that they understand the proposal for what it is and how it is relevant to them.? The mistake many advisors and fund managers make is that they naturally present to investors through their own lens. Instead, they should be re-framing how they present to be much more on the investors unique terms.

Advisors need to appreciate that with 20 people in the room there could be 20 different reactions, because each person is unique. The best way to get around this is to re-structure the proposal being presented into 4 quadrants so that each broad category of behavioral needs is addressed: 1. The big picture and how it relates to achieving goals and bottom-line returns, 2. Indicate how their lifestyle needs are met along with telling them the names of the people involved in managing the product or solution, 3. Address financial security and provide feelings, 4. Make the solution tangible and provide the history and research details.

Learning Point:
Advisors need to use behavioral insights to customize their communication with clients and to re-frame the presentation of ideas and suitable solutions so the client interprets the information as intended.

What are your thoughts? For additional information on discovery through behavioral profiles, click here.

The Influence of Natural Behavior on Decision-Making

This post begins are 10 part series on Financial Behavioral Insights from our Financial Performance in the New Behavioral Economy White Paper. The financial behavior insights will help you gain greater self-awareness for recognizing some of your own behavioral tendencies and also those of investors.

Behavioral Insight 1:? The Influence of Natural Behavior on Decision-Making

Natural DNA Behavior predicts how people will respond to life and financial events, and therefore will drive many of their decisions, particularly when under pressure. However, at times their decision may be shaped by a significant life experience, circumstances or education.

Frank Butler retired at the age of 39 as the Chief Technology Officer of a company he co-founded and banked $4 million after tax. At the first financial planning meeting Frank told his advisor that he did not want to take any risk with his money. However, this did not seem consistent with his naturally daring and courageous style or the fact that he had used his natural instincts to take a lot of other risks in his business and investment life. When Frank was probed further, he did say that now that he had capital he did not want to take any risks with his money. Why? Frank said that his parents had gone from riches to rags when he was young and that event materially impacted his life. Ultimately, Frank and his advisor decided to adopt a strategy of being cautiously invested to start with and gradually accepting more risk as results were achieved. Nevertheless, at each annual review meeting Frank would ask his advisor why the returns were not higher.
What is driving Franks decision-making? We often assume it is the energy of money and emotions that drive investor decision-making. However, it goes much deeper than this. The correct starting point to understanding investors behavior is to discover their natural DNA Behavior, the core of who they are. This is the behavior that was hard wired into the investors by the age of 3 years old based on their genetic DNA and early life experiences. The natural behavior often sits deep below the surface, and the investor and advisor can be easily blind to it.

When investors are under pressure they will revert back to their natural DNA Behavior, as it is the go to or flip back behavior. Pressure is often caused by money, relationships and events, and this then drives emotions. What we have learned is that a persons natural DNA Behavior drives how he or she uniquely responds to life and financial events, and therefore how financial decisions are made. A key point is that the natural DNA Behavior will remain inherently consistent throughout a persons life and therefore is highly predictive. Of course, people will make investment decisions from time to time outside of their natural DNA Behavior because of current circumstances, life history, values and education or even because of advice they receive.

Learning Point:
The advisor needs to use behavioral profiles upfront to objectively discover both his or her, and an investors, natural DNA Behavior. Further, there needs to be discovery of the learned financial preferences from life experiences, circumstances and education.

What are your thoughts?? For additional information on discovery through behavioral profiles, click here.

Advisors Can Differentiate By Integrating Behavioral Finance Strategies

Recently, Merrill Lynch and Capgemini have issued a very important research study which demonstrates how much investors confidence has been eroded by the turbulent markets. Investors are still very wary of the future.? Click Here to read the article.
The article points out that the following:

  1. Investors want a more active relationship with their advisors, including a deeper understanding of their investments and how they are aligned to their goals, based on their actual risk profile.
  2. Many investors are being driven by their emotions when making investment decisions which is increasing the need for advisors to engage in greater dialogue with their clients.
  3. Clients are now demanding fundamental changes in how they are served, and are favoring firms which can understand both their emotional and intellectual needs. This is increasing the need for advisors to incorporate a behavioral finance approach towards portfolio management. Advisors need to be able to incorporate the emotional factors into stronger portfolio management and risk management capabilities. A behavioral finance approach of this nature can be a big differentiator among firms.

This research is very consistent with other research, such as from Gallup, which demonstrates the need to emotionally engage with clients at a much deeper level. This is the new “behavioral economy”.

Resistance to Financial Planning

Last week, there was a Financial Planning Association group discussion in which someone posed the question: Why do people resist creating a formal financial plan.

This is a great question and gets to the core of financial planning.

Many people do not know what financial planning is. I think many financial planners are still learning what it means to them. As the industry grows and comes to more of a collective view then this will help. Is the planner about achieving returns or helping a client achieve life and consequently financial goals? What role is the planner playing in the client’s life?

Those who accept the planner as their financial life guide will more likely do a financial plan. Another key point is the person’s level of personal trust. Do they have fears about planning and sharing themselves and getting help? Do they trust the planner? Both issues are at work.

I also find that if the planner is not a trusting person (and our research shows 70% are not) then this is not conducive to building relationships and getting planning commitment. The question of trust gets down to both a person’s DNA behaviors and their life experience. The more the planner represents product and is not independent then trust will also be harder to build.

Ultimately, the more a planner seeks to know their client and make the client feel they are understood then the chances of getting the plan done increases. Further, retention will increase. The client is not a financial number but a person whose life constantly develops.

Do You Know Who Your Clients Are?

No matter the industry, providers of products and services are always saying something to the effect of: “You are blind as to who is going to walk in the front door for their first meeting with you. As you work with the client a bit you have a greater collection of knowledge but still not the whole picture. It can still take 10 years or more to really know who you are dealing with”. Do you truly know the life and financial motivations of your clients? Their deepest desires? Do you know their risk tolerance? Do you know what types of products and services they want?

The reality is that most providers of products and services know very little about their clients. For the first few hours from meeting the client research shows that less than 10% is known about the client and in the medium term less than 20%. How much better off would the client and the provider be if more was known earlier?

The question I have is: why don’t product and service providers seek to find out more about their clients? One reason is that it is hard and we do not have the time. So, the key is finding a way to quickly and non-invasively get the information you want and make the client feel understood. The process must be mutual.

Our “inside out” process for serving clients is below. Most providers start at step 3 – the product providing point. Whereas starting at step 1 is key – understanding the client’s life and financial motivations. Step 2 is to demonstrate empathy by communicating on the clients terms, and then step 3 is to match the DNA of the client to the right product. Finally, step 4 is to guide the client to make the right choices.

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If you want to get started on this process, please go to and take our complimentary Communication DNA profile. Then you can see how to bring this process into your business to get to know your clients at a deeper level much more quickly for a more productive outcome.