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Advisor Sales through Behavioral Finance

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Advisor benefits of understanding behavioral finance – I’ve seen that advisors who understand behavioral finance were able to take a new approach with their prospects and clients that resulted in increased revenue and far less work.  For these advisors, behavioral finance changed the investment and service focus from them to their prospects and clients. These people loved this new focus, were happier, and responded with more of their investments and delivered substantially more referrals.

Behavioral finance often misunderstood – Behavioral finance is not just about setting each client’s risk tolerance into a diversified portfolio and convincing them to stay the course.  As noted by Jeff Hybiak, a behavioral finance expert at SEM Wealth Management, “Behavioral finance is misapplied by many firms.” These firms feel their clients should change instead of their investment programs doing the adapting.  Jeff further noted, “the beauty of behavioral finance is it adapts investments to what clients are likely to do.” This is far better than those behavioral finance programs that tell clients how they should feel and what actions they should take.

An advisor differentiator – Advisors who can show their prospects and clients that they have an effective behavioral finance investment and service programs have a powerful differentiator.  Most investors are unaware of the influence emotions have on individual and institutional investors. There were many well-known financial firms in the last recession that either closed shop or needed bailouts because their emotions caused them to assume too much risk.  And many advisors aren’t aware of their own investing emotions through, for example, having their own risk tolerance assessment.

Educating prospects and clients – Any conversation about one’s advisory service should start with educating prospects and clients about the danger of emotions, and the benefits of investment and service programs that take emotions into account. The DALBAR and the Vanguard “Putting a Value on Your Value” studies are two good tools to help investors understand the benefits of complete behavioral finance programs.

Understanding each prospect and client – A rule of thumb for behavioral-finance-based prospect and client discussions is that the advisor should talk less than 20% of the meeting.  This comes from three categories of questions. Source of their wealth? Objectives of their wealth? Experience with prior market extremes? There are many follow up questions for each of these main questions, which is why these meetings typically last two to three hours.  If a risk tolerance questionnaire also is used, it should be short – around six questions.

Creating each client’s behavioral finance program – Space here doesn’t permit a full review of a behavioral-finance-based investment and service program for a client.  For investing, there is the layering of strategies, and the design of cash flow programs. Even the rate of investing cash is dependent upon each client’s behavior. For servicing, an agreed upon sharing of information and emotions is vital.  This should include the frequency of communication and the specific categories of information which should be shared by the advisor and the client.

Every single advisor I’ve helped adopt this complete behavioral finance approach wished they’d done it sooner. They had happier clients, worked less, and saw their advisory businesses significantly grow. This free help is part of my FAN (Financial Advisor Network) group’s mission. Perhaps more advisors don’t fully embrace this complete approach because they’re unaware of it. Fortunately, the approach is easy to learn for anyone willing to try something new.

Michael Sakraida is a financial sales consultant, and the founder of the Financial Advisor Network (FAN) group, with over 17,000 advisor members. He has helped advisors, BD’s, and RIA firms have happier clients and more successful businesses by appealing to, and working with, their clients’ emotions.  The first online installment – free – of Mike’s book, Happy Client, Happy Advisor is available at

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