There’s a rising demand for psychology in monetary planning


Portfolio building

Some companies have incorporated financial psychology when building portfolios.

Jeff Rupp, managing partner of View Capital Advisors in Dallas, a company ranked 98th on CNBC’s FA 100 list, said financial psychology is built into the company’s asset selection.

One of the company’s research analysts has a background in behavioral finance, and the company often applies these concepts to its investment decision-making process, Rupp said.

“We’re looking at what’s behind the recommendation,” he said, explaining that team members may react differently to investment proposals depending on their risk profile. “We look at how the investment team reacts.”

Investment advisor

Asset managers can also use financial psychology to help clients make investment decisions, especially when the stock market collapses.

“A lot of people say, ‘I can handle a 10 or 20 percent correction’ until it happens,” said Michael Cornfeld, owner of Heritage Investors Management in Bethesda, Maryland, who ranks ninth on CNBC’s FA 100 list .

A lot of people say, “I can handle a 10 or 20% correction” until it happens.

Michael Cornfeld

Owner of Heritage Investors Management

“And then, unfortunately, they can’t take the pain,” he said, explaining how some clients want to reduce portfolio risk after shocks in market volatility.

Managing assets is like taking a road trip across the country with customers in the back seat, Cornfeld said, and they expect harsh conditions like snow, ice, floods and flat tires.

In these scenarios, he can go faster and improve his equity market positions.

But in the meantime, Cornfeld wants to keep his clients in the car regardless of the conditions like news or cocktail party gossip, and describes his role as an “investment advisor”.

Estate planning

Another scenario in which financial psychology plays a role is when a customer fails to address a sensitive issue such as their own mortality, Rupp said.

“What is going to happen is that they just drag their feet,” he said. “You really don’t feel like dealing with the subject.”

But if a client doesn’t budge, a consultant can try “working around the edges” to protect them with some basic estate planning like wills and powers of attorney, he said.

Whether a company recently incorporated financial psychology into their practice or it is a long-term strategy, experts believe this trend is likely to continue.

“The most effective financial planners build and maintain trusting relationships in which every customer feels understood, supported and motivated to follow the planner’s recommendations,” said Keller.

And as training, certification, and other learning opportunities continue to emerge, consultants can be well equipped to meet customers’ changing needs.

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