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Learned Behavior: Educating Advisors on Behavioral Finance

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There’s an ample body of academic research that financial advisors could turn to in order to figure out why, say, a prospective client seems so eager at first to retain their services and then suddenly goes cold on them.

However, going through those studies to read up on such behavioral traits as client over-optimism and empathy gain, and then figuring out how to counteract them, can be a laborious and time consuming process; one that, understandably, many advisors may not be inclined to do, says David Greene, a managing partner at Atlanta-based Greene Consulting.

“The research is all out there and it’s great, but in our experience with advisors, we’ve seen that it’s best to provide a direct application of the academic perspective rather than leave it up to interpretation, and to tie the research up in a practical way that advisors can use,” Greene says.

That’s why Greene Consulting has teamed up with Keith Van Etten, former managing director at U.S. Trust, Bank of America Private Wealth Management in Boston and a consultant in the field of behavioral finance and alternative investments, to develop an educational program for financial advisors that synthesizes the nuts and bolts of behavioral finance research in a practical and easy-to-apply manner.

The online course, which consists of five different and sequential modules, will launch in early March and one of its main focus areas is the behavioral aspect of the advisor/client relationship. The course is designed so advisors can optimize behavioral finance theory to its fullest practical application, Greene says, and give their client relationships the depth that they require, at a time when relationships are even more important than ever.

Neither advisors nor clients are wired in the same way, and beyond that broader division, individual brains also work differently, Greene says. Clients tend to resist the input and direction of advisors, who have to then figure out why and how best to counter their behavioral biases and bring clients around to taking a more rational approach toward investing.

“We really have focused on the heuristics and translating all the available information out there into the kind of best practices that can help advisors in their client relationships,” he says.

Starting with a synthesis of the basic concepts of behavioral finance, the different modules of the online course address clients’ decision-making processes and how behavior influences their investment errors, and it offers practical ways to employ academic research on behavior to counter these. The final module, Greene says, is perhaps the most important and pertinent part of the course, as it focuses on behavioral finance and its importance with respect to fiduciary best practices, and offers advisors practical strategies to help them fulfill their fiduciary role while understanding their clients’ behavioral traits.

Targeted toward mutual fund companies, wirehouses, banks and independent advisory businesses, the course can be customized to what a particular firm may want, Greene says, and includes the option for more in-depth, personalized seminars on any area a firm wants to explore in greater detail. Greene Consulting also has prepared a number of white papers on specific topics within the broader course.

“We’ve tried to sort out the content to make it more manageable because we’ve seen an increase in the willingness of advisors to want to understand their clients’ minds,” Greene says. “As markets have become more volatile, advisors have to have something that helps them help their clients take the emotion out of investing and figure out ways to engage the second system of their brains. But every firm must have a disciplined approach to this and to the best practices that they’re using.”

Since 1979, Greene Consulting has been a leading provider of consulting and training in the financial services industry. The new behavioral finance course adds to the company’s extensive library of online wealth management courses.