The Three Drivers Of Advisor Behavior by Krishna Pendyala
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In my previous article for Advisor Perspectives, I discussed the importance understanding which drivers of behavior are piloting an advisor’s clients. Through this psychological lens, advisors are better able to understand and empathize with their clients and anticipate the life changes and decisions they may face in the future.
Hedge fund managers go about finding investment ideas in a variety of different ways. Some target stocks with low multiples, while others look for growth names, and still others combine growth and value when looking for ideas. Some active fund managers use themes to look for ideas, and Owen Fitzpatrick of Aristotle Atlantic Partners is Read More
Building on this, advisors also need to take a look inward to better acknowledge and identify the impact of the same drivers of influence on their own judgment and choices.
Why is this important?
Financial professionals are schooled in finance and believe that they follow a systematic, logical approach to their work. The nature of their work demands that people, coworkers and clients alike, place a lot of trust in them. A full roster of clients and excellent references are things that clients look for when choosing a financial advisor whom they will trust. However, there is one factor that ultimately determines how valuable a financial advisor will be and how long they will retain their clients’ business and trust: judgment.
When dealing with a financial advisor, the common expectation is for the advisor to operate from a place of logic and rationality. However, financial advisors are human, and the chances of them getting unduly influenced by the same factors as everyone else, whether obvious or latent, is very high. This is why the quality of their judgment plays such an integral role in them being able to do their jobs and earn trust. A state of unawareness about what’s going on behind the scenes can hijack the way an advisor operates.
Many financial advisors are well versed in the study of behavioral finance as it relates to client relations. Widespread articles advise investors to ignore the markets, to place their trust in their long-term plans and to not panic at the first signs of volatility. However, when clients make an investment, they aren’t the only ones invested in the situation.
Advisors, too, have a stake in the success of their clients’ portfolios – because in addition to time and energy, they are also investing hope of success and a growing firm. Their attachment to growing their firm and increasing their revenues can present a competing, conflicting demand as factors outside their control grow in perceived importance.
To inspire confidence, both in themselves and in the eyes of their clients, financial advisors should engage in introspection in order to take control of the things they can and determine which driver of influence is behind their actions.
Read the full article here.