Frank Murtha, managing partner of MarketPsych, told event
attendees that educating investors only goes so far – advisers also have to
consider their clients’ emotions in order to change their behaviors. The same
rings true for products, which are only helpful if the adviser knows how to
apply them to individual clients, said Dana Klein, vice president of sales
strategy for American Beacon Advisors.
Investors should seek advisers who understand where they are
coming from emotionally rather than just jumping into a discussion about money,
said Richard Peterson, managing partner of MarketPsych. “That doesn’t help
build the relationship,” he stressed.
Murtha added that advisers should also help clients focus on
long-term goals, as behavioral studies indicate investors tend to focus on the
Many personality traits determine how a client will invest,
including whether the client is emotionally stable, extroverted versus introverted and open-minded versus
more traditional. Emotional stability is
especially a factor during periods of market volatility, Murtha said, as more “unstable”
personalities will become fearful.
Trust for the financial industry has been at an all-time low
since the economic recession, which is why Peterson said advisers must make it a priority to
build trust with their clients. “And with [the trust level] being so low, that’s
taken on a new urgency,” he added.
Advisers should utilize resources that can help them to
better understand their clients’ investment decisions. Resources such as “Financial
Planning Fundamentals,” which offers personalized suggestions for helping
investors overcome the most problematic investing biases, are available on
MarketPsych’s website. Personality tests for are also available here.