At a time when retail investors have more options for where to seek financial advice than ever before, advisers who incorporate behavioral finance into their business potentially can stand out significantly.
Implemented correctly, a behavioral finance-based approach can help advisers steer clients away from decisions that can severely damage their ability to reach long-term financial goals, especially during the inevitable moments of high market volatility and correspondingly intense personal emotions in response.
Learning and effectively addressing the likely emotional reactions of clients creates an opportunity for an adviser to build closer personal connections with clients. This is especially the case among the “barbell” demographics of baby boomers — most of whom are at a point in life where they cannot afford major financial missteps — and millennials, many of whom tend to favor professional relationships that include a personal or social dimension.
However, while awareness of behavioral finance’s importance is growing, independent advisory and brokerage firms, or IABs, must go beyond treating behavioral finance as a new industry buzzword and help make it part of each adviser’s “client service DNA.”
‘Early Adopter’ Advisers as Mentors
One key area where such efforts can begin is at national conferences and other key adviser events. IABs that are truly committed to making behavioral finance part of their culture should use their national conferences and other adviser events more effectively by placing advisers who are early adopters of behavioral finance front and center at such events.
Incorporating panel discussions between such advisers as general session events can help demonstrate that behavioral finance is not merely the domain of Ph.D.s and professional trainers, and motivate other advisers to learn and apply these techniques in their own businesses.
Additionally, these gatherings can be ideal skill-building opportunities. For firms that have behavioral finance training programs in place, preconference study groups can help graduates take their knowledge and practice of core principles to the next level, while introductory training sessions can help advisers who are new to these concepts — as well as their client service teams — get up to speed.
A Year-Round Opportunity
Making behavioral finance a more central element of adviser events is only a starting point.
Firms with formal training programs can continue to help such programs’ graduates hone their capabilities by offering continuing education workshops and checking in on a quarterly or biannual basis to ask advisers how these programs have helped their practices.
Creating a constant feedback process enables IABs to continuously tailor their behavioral finance training throughout the year, making these programs more effective with each set of modifications.
IAB firms can also engage both graduates and non-graduate advisers with year-round “drip” educational campaigns, including news on current developments in the science of behavioral finance, white papers and stories from affiliated advisers who have seen positive results by deploying a behavioral finance approach with clients, as well as tips from noted third-party experts.
Behavioral Finance as Part of Advisers’ Story
Many IAB firms have dedicated, in-house marketing professionals who provide certain turnkey solutions to advisers and who can also function as a key resource in helping to make behavioral finance part of a firm’s culture, and part of an advisory practice’s story for clients and prospects.
Advisers can benefit enormously from the process of working with a marketing professional to refine their value proposition and client communications to emphasize the role behavioral finance plays in their business as part of a broader effort to get to know their clients and what makes them tick. Further refining their messages by client segment — retirees and pre-retirees, Generation X, millennials, etc. — can drive an even more impactful marketing and client prospecting strategy for advisers.
A Behavioral Finance-Focused Future
Behavioral finance is much more than a trendy topic to draw advisers to conferences or lend scientific gravitas to their recommendations to clients.
Rather, it represents a wholesale shift in the ways in which advisers engage and understand their clients in the fiduciary era, and will form a core part of our industry’s value proposition in the years ahead.
By implementing the best practices above, IAB firms can not only help their advisers understand the benefits of this new approach, but make it part of the DNA of their entire organization.
Richard Lampen is president and chief executive officer of Ladenburg Thalmann Financial Services (www.ladenburg.com), and Kirk Hulett is head of Ladenburg Practice Management.