It’s easy to forget, with the technological concerns on one side and the market pressures on the other, that we deal with people first and foremost. Flesh-and-blood clients have powerful psychological dynamics behind their decisions, and engaging these dynamics can help us plan more accurately, and have those plans more effectively kept over time.

An insightful group of speakers spoke to these issues during Behavioral Finance Week on the Framework podcast. From transforming society through changing attitudes about money to everyday finance hacks from behavioral psychology, we appreciated seeing the breadth of this relatively young field in wealth research.

Learn More: Register for Our Behavioral Finance Webinar Here!

How Behavioral Finance Works in Conversation

Consider this: Joe has been a client of yours for many years. You helped him build his initial wealth, put 529 plans in place for the kids, and now you’re putting the finishing touches on his retirement plan. Through the years, Joe has made clear his preference for automotive stocks.

One day over lunch he tells you about the time he hit the big one with automotive stocks back in the early 80s. Digging deeper into the story, you hear about his grandfather investing in Ford as a young man and getting his family out of the Depression with the returns. You realize his tie to that stock – called anchoring bias – is based on much more than numbers.

You then approach it differently, engaging Joe’s story and showing him carefully that his attachment to this stock is rooted more in emotion than in returns. After a few conversations, he’s more receptive to your advice. He starts to diversify and teases some of that money into a better mix. Over time, his investing becomes more intentional and his losses less severe, all because you used behavioral finance strategies to draw attention to his anchoring bias.

A Question for Our Speakers

Our speakers for Behavioral Finance Week have seen several stories like Joe’s play out, and use a psychological approach to improve accuracy and take some vertigo out of the learning curve. We asked them how to transfer these behavioral finance strategies into everyday advisor practice. Here’s what they had to say.

Dr. Vicki Bogan 

Cornell University

Overcoming behavioral biases that have negative influences on your investment behavior is not easy. While recognizing biases is an important first step, studies have shown that awareness of biases and blind spots is not sufficient to stop their effect on your behavior.

One way to neutralize the effects of behavioral biases in financial decision-making is to automate part of the process. For example, if you already have a retirement account, make it easier to contribute to regularly by setting up automatic direct deposits to your account. Making these deposits automatically each month can help you sidestep status quo bias and other issues that might negatively affect how much you save.

Dr. Teresa Ghilarducci

Schwartz Center for Economic Policy Analysis (SCEPA) at The New School.

The most important strategy a person can use in advising or financial planning is to adopt target savings rates for the long term and put the funds in a Vanguard low-fee portfolio of stocks and bonds and revisit every year. This strategy is one of being automatic and avoiding reactions to any daily or sectoral events. Eliminate dopamine and opiate brain transmitters in investment and saving decisions.

Dr. Daniel Crosby

Orion Advisor Solutions

Let’s face it: Behavior change is very difficult. For it to truly stick, it takes a holistic intervention that includes what I call the 3 E’s:

  • Education: We should begin by educating our clients on the fundamentals of markets, the power of financial planning, and the best use of our services. They should have a general sense of what to expect in terms of realistic medium-term returns as well as the likelihood of volatility. Further, they should be encouraged to ask questions and ask for clarification as needed.
  • Environment: Education is vital but there’s also a weaker connection between knowing what we ought to do and doing what we ought to than we’d like to admit. After all, all of us know the secrets to weight loss (more movement, fewer calories), and yet it can still be difficult to maintain an ideal weight. Environment is an even better predictor of behavior change than education, meaning that our clients need to immerse themselves in the right financial setting. What does this look like? Well, first off, it means having a portfolio that is aligned with their risk-taking behavior. Second, it means avoiding taking in melodramatic news stories that can cause fear. By surrounding ourselves with the right mix of assets and the right ideas, it becomes much easier to stay the course.
  • Encouragement: Finally, we have encouragement or what could be thought of as real-time behavioral coaching. Even with the right education and the right environment, there will still be volatile markets that elicit our clients’ natural fear and greed response. It’s at moments like these that the advisor needs to call on the personal rapport they have built with the client and become the last line of defense between them and a poor decision. While technology can commoditize education and environment, encouragement remains a significant value that can only be added by a trusted advisor.

Dr. Anna Madamba


Procrastination can slow or even derail the best-laid plans at various points of the planning process. In this form of present bias, action or decision-making is put off for a later time because the cost of acting now is magnified relative to the future.

Getting to start is usually the big hurdle, especially if the task seems overwhelming. I find that breaking up the task into pieces helps to make it more manageable. What’s more, you get the satisfaction of accomplishment with each piece of the task you complete. And sometimes once you get started, you end up completing the whole task, anyway!

Automation helps, too. When there is a tendency for delay, pre-filling forms, automating savings and pre-scheduling touchpoints all help to manage procrastination.

It Starts with Relationship

As an advisor, you not only have market knowledge and planning savvy at your disposal, you also have a relationship with the people involved. You can help someone form healthier habits and perspectives around their financial plan armed with behavioral finance strategies. You will have to know them, and they will have to trust you, to make those insights relevant.

After all the technology, theory and number-crunching, it comes down again to that person across the table from you. Insight into them as a three-dimensional person will pay off at the end of the day, for you and them.

Check out our on-demand webinar, “Incorporating Behavioral Finance Into Financial Planning” with Jamie Hopkins, Managing Director of Carson Coaching and host of the Framework podcast, joined by leading voices in behavioral finance for this roundtable discussion.

Sign up here to watch it at your convenience!

Get the webinar!  

The views stated in this article are not necessarily the opinion of CWM, LLC and should not be construed directly or indirectly as a recommendation, or an offer to buy or sell any investment products mentioned herein.

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