When discussing financial planning issues, there is so much talk about investor behavior. However, rarely does the discussion get to the advisor’s behavior. Our recent whitepaper: “Dealing with Financial Planning Risk – Directing Portfolio Decisions or Navigating Human Behavior opens up the discussion on the importance of advisor behavior as the advisor is the behavioral guide of the client.
Have you ever considered how much the advisor’s behavior impacts the investor’s performance? The reality is that advisors are human as well. They have strengths and struggles which impact their decision-making and how they respond to the financial markets. Even more important is that advisors need to realize that their behavioral style could be different to that of the clients, and therefore they have to be aware of what this means. You can also learn more by visiting the following blog by Samantha Allen: http://www.financial-planning.com/blogs/Forget-Investor-Behavior-What-About-Advisor-Behavior-2681735-1.html
Research shows that some advisors themselves have a “myopic loss aversion” resulting in extreme caution. Then there are other advisors who have extreme “over confidence” and can be blinded about the potential dangers of the strategy they have recommended. There are also advisors who just get stuck in their own strategy because that is what they know and believe in but do not know how or when to adjust. Ultimately, the problem can become that the clients portfolio starts looking like the advisor.
Our experience has also been that if the advisor has high levels of personal awareness then they have a greater chance of managing the influence of their behavior on the client’s portfolio. This ability is increased if the advisor uses an objective behavioral discovery process for themselves and the client. This will help the advisor more clearly and confidently navigate the differences.
If you take the graphic below which compares the behavioral style of Chris Coddington as the advisor and Helen Jones as the client you can see the differences that have to be navigated.
Chris is a driven pioneer and risk taker who will be focused on performance. But will he push Helen too far out of her Content lifestyle zone? Will Helen be able to control herself when she hears new ideas at the dinner party?
To learn about your style, complete your Financial DNA assessment and then start seeing how different you are to clients. Please visit www.financialdna.com.
If you would like to access the whitepaper: “ Dealing with Financial Planning Risk – Directing Portfolio Decisions or Navigating Human Behavior“, click here.