Advisers told to manage client behaviour

You manage clients’ investments, but how good are you at managing their emotions?

Wednesday, February 4th 2015, 6:00AM 3 Comments

by Susan Edmunds

There are calls for advisers to be given more education about managing investor behaviour and expectations to boost their investment returns.

Industry commentator David Whyte, of DCW Management, said behavioural factors were becoming a much more significant consideration in the work of financial planners around the world.

Hugh Massie, of DNA Behavior International, said although investor behaviour – such as getting spooked and selling during a downturn – could cost them returns, the focus should be on equipping advisers to manage that behaviour, not educating investors themselves.

He said the investors were never going to understand market dynamics in volatile circumstances or the complexities of different products.

“Given investors are not professional in the market every day it will always be hard for them to manage their emotions.”

But he said advisers were well positioned to influence their clients’ attitudes.

He suggested they do that by being more aware of their own biases, learning how to adapt their communication style to improve emotional engagement and getting their clients to be emotionally committed to their decisions.

Whyte said it was something that more Kiwi advisers needed to bear in mind. “Lots of financial planners do this already on an evolved basis but it would be more appropriate to have a framework and conceptual structure that goes around that. I think it’s something that’s gaining momentum in Australia quite significantly and is beginning to raise its head here.”

Whyte said it was something that could be driven by the FMA and New Zealand’s financial services regulation should make reference to behavioural finance and economics.

He has scheduled a meeting with the FMA next week to discuss the idea.  “There’s no question that the FMA needs to be aware of the implications of applying this type of discipline to client management.”

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Comments from our readers

On 4 February 2015 at 11:20 am AFA Muggins said:
The world has gone mad.

So we are now going to have regulation of investor emotions via the FMA?

I would suggest that individual advisers are already well aware of the concerns raised above, and deal with their clients expectation and emotions on a case by case basis.

When it comes to large financial institutions, it probably doesn't happen and maybe that would be a better place to focus such distractions.
On 5 February 2015 at 8:38 am w k said:
coming up next: degree in psychology a requirement to be an adviser on top of CLU, CFP, AFA, etc.
On 5 February 2015 at 9:21 am dcwhyte said:
By way of follow up , there's a free webcast at this link - - addressing the question -
"Why do investors make the wrong moves at the wrong times?"
This event features madmen like Victor Ricciardi, an Assistant Professor of Finance and co-author of "Investor Behavior" - worth reading.

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