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September 30, 2001 at 08:00 PM
By Barry Higgins
American Skandia has taken steps to train its representatives to better understand the psychology behind the decisions that investors make. Understanding why investors take the actions they do may help reps to better manage their clients’ expectations, Skandia feels.
“Certainly in light of what’s happened in the marketplace over the last several months you see a need to manage client expectations more then ever before,” says Michael Murray, senior vice president national markets director for American Skandia, Shelton, Conn.
American Skandia is working with Professor Hersh Shefrin, Santa Clara, Cal., to develop a series of practice management tools for its field force. Shefrin, author of Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing, defines behavioral finance as the psychology of financial decision-making.
The tools American Skandia has developed focus on many of the concepts Shefrin outlines in his research on behavioral finance. “In many cases, it’s not how much money you make a client, it’s how much money you don’t lose a client,” says Murray. “That’s the message in a lot of his work.”
American Skandia wanted to help its investment professionals apply this to their clients’ situations, continues Murray. “We’re giving them some of the cutting edge research that Professor Shefrin has done.”
Some of the elements that Shefrin’s material addresses include: understanding the differences between behavioral finance and traditional finance, investors’ overreaction to recent market events, and how to integrate behavioral finance into a rep’s practice.
Murray points out that a number of client surveys show “a large disconnect between what investors anticipate their long-term returns as being and what the market has historically been able to deliver.”
While it has long been said that past performance is not an indicator of future performance, many investors still look to historical performance when evaluating investments. “The run-up in the market exacerbated this,” says Murray.
