Get Inside Your Clients’ Minds
Modern portfolio theory assumes that investors approach risk and return in rational terms. But every advisor knows that behind the rational tools of our trade—portfolio construction and security selection—lurks the often irrational world of investor emotions and motivations.
Now might be the time to start including this factor in the way you approach practice management. The field of Behavioral Finance can help you understand how the mind works when it comes to money. Advisors who can retrain themselves in this discipline may gain a real competitive edge.
By recognizing investor biases before they result in irrational decisions, you can ask the questions that go below the surface of financial objectives to get at what your client really wants. And it can help you start to see the many correlations between performance and psychology.