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Are financial advisors making a mistake in trying to steer investors away from making what seems to be a bad idea?  Take for instance the client who calls you today and wants out of the market entirely because they’re not comfortable.  Generally, we would point out the wisdom of staying invested, historical returns, unpredictability of market timing and a bunch of conventional wisdom we’ve gained over the years.  After all, your collective wisdom is a big reason why they hired you, right?  But, are we missing something?

In a recent discussion with a large number of significant investors, something rather startling was pointed out to me.  It comes from the cognitive behavioral school of consulting, and represents a large portion of the poor perception of Advisors by the significant investors.

Humans are very rational when it comes to investing.  But rational is a qualifier that is certainly different from one human to the next.  The lead investor in the discussion maintained that “All behavior is purposeful”.  Sometimes what is irrational to an advisor is very rational when viewed through the eyes of the one doing the behavior.  Perhaps the trick is to first understand how the behavior is rational for the person doing it, and then to intervene in a manner they find “rational”.  This, he said is where Advisors miss the boat.

Many Advisors try to get clients to see things as they do rather than to simply provide useful information they can use, or not use, on their journey.  The former is adversarial, the latter collaborative.

It seems a number of behavioral scientists have written about this adversary vs collaborator, such as Gary Applegate, Happiness is Your Choice, and Sherry Cormier, Paula Nurius, and Cynthia Osborn.  Interviewing and Change Strategies for Helpers.

We tend to focus on the client’s financial needs, but clients have psychological needs as well, which may be much more important to them.  If we are to take a client-centered approach, shouldn’t we be looking at the client’s world through their eyes?

We ask clients for referrals, but what does a referral mean if the referring person does not know the needs, mind, psychology and objectives of the referee?

The lead investor in this discussion said, “Both clients and advisors arrive at the first meeting with a set of expectations for the roles they and the other person will be fulfilling.  Perhaps the advisor’s job (after hearing why the client is there) is to facilitate the client expressing their expectations, to share the advisors expectations, to provide a realistic picture of process/outcomes, and to work with the client to resolve any differences in role expectations or relationship demands.  Thus, the advisor is working to form a working alliance with the client to meet the needs of the client rather than working on “selling” the client on the advisor’s investing philosophy.”  Agreement prevailed.

The result of this discussion was that investor consensus said a truly superior financial advisor can see the world through the eyes of the client without judging the client.  By working from this shared worldview the advisor will be more effective.

Like each of us, our clients have a reason for everything they do.  Shouldn’t we take the time to really get to know them, their likes and dislikes, and what makes them tick?  Like us, investors believe they are doing the things that are best for them.  Just because we’ve been in this business more than a few years, why do we have the right to judge our client’s actions or decisions without first actually understanding them?
Comments welcome.  More on this next time.