From the March 2013 issue of Investment Advisor • Subscribe!

Your Client’s Brain

You’re an advisor, so you like numbers. Here are some: 753, 3,000 and 900. Those are the numbers of registrants for three recent advisor-centric gatherings staged by FSI, TD Ameritrade Institutional and IMCA. Are those numbers due to advisors’ increased need to network, to the stellar speakers or to the fab locations of the conferences? While the need and the speaker star power (Pat Benatar?) no doubt had something to do with the high number of attendees, I’d suggest it had more to do with a few other numbers: 16%, 10.2% and 17.5%; and 5.2%, 5.9% and 4.1%. Those numbers are, respectively, the percentage increases in the S&P 500, the Dow industrials and the Nasdaq composite indexes for all of 2012 and for January 2013.

When the overall markets are performing well, the tide lifts most advisors’ boats and keeps most clients’ portfolios and stress levels steady. That’s why advisors and BD home-office personnel and institutional money managers feel they can afford a day or two or three out of the office and in an exhibit hall.

But you’re an advisor, so you also like people. Even if you don’t particularly like people (yes, I’m talking to you, you back-office quants), you need to understand your clients, and risk questionnaires get you only part of the way there. Good advisors know how to plumb clients’ true feelings from what they say and don’t say. They pay attention to the words clients use when they talk about money and retirement and family. They read clients’ body language. They draw inferences, in other words, from the spoken and physical signs.

Our cover story in February IA and a follow-up article this month (page 32) bring that process of “Know Your Client” far beyond what regulators expect. Olivia Mellan and co-writer Sherry Christie first explored the “curious structure of the human brain” in February and this month suggest how advisors can use the growing knowledge of how the brain functions and malfunctions to help clients make better decisions.

I believe there’s plenty of insights presented and techniques offered throughout the two articles—and in a series of follow-on articles you can find throughout March on AdvisorOne.com—that can help you guide clients to make decisions that are most beneficial to them in the long-run and to feel better about those decisions.

We’ve come a long way from our ancestors, but our sophistication, socialization, strong wills and presumed self-knowledge don’t keep us from behaving like the cavepeople we once were and still are. “The perceived threat may be just a rude driver, but we react as viscerally as if we’d stepped on a cobra,” write Mellan and Christie. As a result of that numbskull driver’s actions, says psychotherapist Linda Graham, our brain reverts to a primal state: “Our judgment is temporarily impaired […] and we literally can’t think straight.”

If knowledge is power, insight into behavior is super-powerful. This series, we hope, can give you that power, and the techniques to modify your primal behavior, that will benefit you and your clients, even if numbers aren’t involved. Good luck.

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