differentiating your firm with clients and prospects€¦ · differentiating your firm with clients...

a think2perform program

Behavioral Financial Advice; Differentiating Your Firm with Clients

and Prospects

Goals

> Heighten awareness of your role in integrating

Behavioral Financial Advice with traditional

financial planning and advice.

> Develop ways to integrate Behavioral Financial

Advice into the mindset and interpersonal

relationships of your practice.

> Expand how you help clients make better

choices with their money.

Behavioral Financial Advice

© 2017 think2perform. All rights reserved.

Q:

A:

In the 20 years ending in 2018,

the annual performance of the

S&P 500 was 7.5%.

False. 5.62%.


Source: 2019 DALBAR Study “Quantitative Analysis of Investor Behavior”


Q:

A:


the average performance of an

equity fund investor was 5.6%.

False. 3.88% Investments work,

Investors don’t.




Q:

A:


the annual performance of the

Barclays Aggregate Bond Index

was 4.55%.

True.




Q:

A:


the average performance of

fixed income investors was

0.22%.

True. Investments work, Investors

don’t.




Q:

A:


the rate of inflation was 1.9%.

False. 2.17%.




Q:

A:

Emotions have little or nothing

to do with decision-making.

False.



Q:

A:

Psychology has little influence

on the behavior of financial

practitioners.

False.


Source: The Psychology of Investing by John Noffsinger

Beyond Greed & Fear by Hersh Shefrin


Q:

A:

Investment-centric advisors

(ICA) tend to get more business

than their relationship and

client-centric (CCA)

counterparts.

False.


Source: John J. Bowen, Financial Planning Magazine, “Up Close and

Persona”.l


Q:

A:

Effective leadership/influence of

client behavior is primarily a

function of advisors managing

their own behavior effectively.

True.



Q:

A:

Paying attention to one’s own

physiological, emotional and

cognitive experience is critically

important to Behavioral

Financial Advice.

True.


Source: Inside the Investor’s Brain, by Richard Peterson


Q:

A:

Behavioral Financial Advice will

replace Financial Planning

Advice.

False.



Q:

A:

Moral and emotional

competencies are as important

as cognitive and technical

competencies in managing

one’s own behaviors and in

leading client behavior.

False.


Source: Source: Consortium for Research on Emotional Intelligence in

Organizations (CREIO) www.eiconsortium.org


Overview of

BFA

Module: what is Behavioral Financial Advice?


BFA and

performance

Emotional

and moral

intelligence

Emotional

and moral

competence

Six

behavioral

competencies

Why Behavioral Financial Advice is

Important?

> Consumers:• Are confused about who to trust and what to do

with their assets.

• Are becoming more aware that there is a gap

between investor and investment performance.

• Are not prepared for retirement and are scared

about the future.

> Industry has historically sold what is emotionally

easy to get the consumer to buy.

> Your clients are making irrational decisions

and it’s impacting you and your business.





You

Your clients

Behavioral

Financial

Advice

BFA is the integration of three disciplines



Traditional

Finance

Neuroscience Psychology



Talent

Skills

Decision-making

Performance



It begins with you

Logic chain



Leader &relationship

effectiveness

Effective self-management

Effectivedecision-making

Self-awareness

The Alignment Model

Ideal Self

Moral Compass

Frame 1

Principles

Values

Beliefs

Goals

Frame 2

Purpose

Goals

Wants

Real Self

Behavior

Frame 3

Thoughts

Feelings

Actions



The Freeze exercise

1. Say “freeze” and pause

2. Write down

What am I thinking?

What am I feeling?

What am I doing?

3. Are my feelings, thoughts and actions aligned?

4. Is there a better choice for me right now?



Emotional intelligence and emotional competence



KNOWING

Emotional

intelligence

Recognizing feelings and

differentiating between emotions

DOING

Emotional

competence

Managing emotions

Moral intelligence and moral competence



KNOWING

Moral

intelligence

Recognizing how principles and

values apply to goals and actions

DOING

Moral

competence

Acting on moral principles and

values

Moral principles and organizations

Moral principles Moral competencies Result

Integrity

1. Acting consistently with principles,

values and beliefs

2. Telling the truth

3. Standing up for what is right

4. Keeping promises

Trust

Responsibility

5. Taking responsibility for personal

choices

6. Admitting mistakes and failures

7. Embracing responsibility for serving

others

Inspiration

Compassion 8. Actively caring about others Retention

Forgiveness9. Letting go of one’s own mistakes

10. Letting go of others’ mistakesInnovation



Six behavioral competencies that impact portfolio

performance



Integrity

Teamwork

Customer

service

orientation

Concern for

order /

quality

Achievement

orientation

Self-

confidence

Source: Emmerling, R., Spencer, L. et al. “Morally and Emotionally Competent Financial Advisors Deliver Superior Client Service and Portfolio Performance. Copyright 2007. think2perform and Ameriprise Financial, Inc.

Investors value honesty in their advisors above all else



2011, Rebuilding Investor Trust, Insights on Affluent Investors Research Study, Overview. Sullivan and Northstar Research Partners.

Module: stress, the mind and the brain


The impact of

stress

Personal

stress

assessmentMoney on

your mind

The

neuroscience

of behavior

Physiological

phenomena

Psychological

phenomena

From Misery to Wisdom: the health-wealth connection



Preparing clients financially for the certainty of

uncertainty reduces stress



Perceived stress scale: assessment

1. Treat each as a separate question.

2. Select a reasonable estimate.



Interpreting the perceived stress assessment

> Below 18 points – Below Average

> 18 – 21 points – Average

> 22 – 25 points – Slightly Elevated

> 26 – 30 points – More Elevated

> Over 30 points – Not Coping Very Well

> Over 55 – Area of Greater Concern

A certain level of stress optimizes performance!



Stress affects performance and increases cost


STRESS

Affects our

levels of

performanceIncreases

the cost of

doing

business

STRESS


Goal achievement triangle


Goals

RelationshipsTasks


Patterns of behavior


Goals

RelationshipsTasks


Stress

Stress and its impact on performance



Stress

Performance

Peak performance

Mental Physical

How the brain works…we feel before we think


First response Cognitive response

Quick

Emotional

Reflexive

Measured

Logical

Reflective


Neuroscience of the brain

.

Prefrontal cortex

Amygdala

Brain stem


The ideal state

High

Low

Negative Positive

Anger

Fear

Anxiety

Frustration

Ecstatic

Excited

Energetic

Optimistic

Depression

Sadness

Hopelessness

Exhaustion

Burnout

Confident

Inspired

Satisfied

Challenged



Source: Jim Loehr and Tony Schwartz

Hidden traps in decision making



Heuristics Bias

Framing effects

Heuristics


Mental shortcuts

Rules of

thumb

Educated

guesses


Biases


Excessive

optimism

Illusion of

control


Overconfidence

Confirmation

bias

Framing effects



? ?

Module: the Alignment Model


Alignment

Model

Experiential

triangle

Values

exercise

EQ-i

assessment

activity

Freeze

exercise

The 4Rs

The Alignment Model

Ideal Self

Moral Compass

Frame 1

Principles

Values

Beliefs

Goals

Frame 2

Purpose

Goals

Wants

Real Self

Behavior

Frame 3

Thoughts

Feelings

Actions



Frame 1: Moral compass


Ideal Self

Moral Compass

Frame 1

Principles

Values

Beliefs

Goals

Frame 2

Purpose

Goals

Wants

Real Self

Behavior

Frame 3

Thoughts

Feelings

Actions


Moral principles and organizations

Moral principles Moral competencies Result

Integrity

1. Acting consistently with principles,

values and beliefs

2. Telling the truth

3. Standing up for what is right

4. Keeping promises

Trust

Responsibility

5. Taking responsibility for personal

choices

6. Admitting mistakes and failures

7. Embracing responsibility for serving

others

Inspiration

Compassion 8. Actively caring about others Retention

Forgiveness9. Letting go of one’s own mistakes

10. Letting go of others’ mistakesInnovation



Frame 3: Behavior


Ideal Self

Moral Compass

Frame 1

Principles

Values

Beliefs

Goals

Frame 2

Purpose

Goals

Wants

Real Self

Behavior

Frame 3

Thoughts

Feelings

Actions


Optimal performance starts with self-management


Self-awareness


Living in alignment

Experiential triangle: applying self-awareness


Source: Joe LeDoux, NYU

Thoughts(rational center)

Actions(habit center)

Feelings(emotional center)

Outside

stimulus


The ideal state

High

Low

Negative Positive

Anger

Fear

Anxiety

Frustration

Ecstatic

Excited

Energetic

Optimistic

Depression

Sadness

Hopelessness

Exhaustion

Burnout

Confident

Inspired

Satisfied

Challenged



Source: Jim Loehr and Tony Schwartz

The 4Rs of competency development



Recognize

Reflect

Reframe

Respond

Recognize



Recognize

Reflect

Reframe

Respond

Freeze exercise

Recognize your own thoughts, emotions, physiology/action and

recognize the experience of others

Reflect



Recognize

Reflect

Reframe

Respond

Freeze exercise



Reflect on the big picture, the long-term, the biases that might be

in play, the moral principles and what you care about most (your

values)

Reframe



Recognize

Reflect

Reframe

Respond

Freeze exercise





values)

Reframe your self-talk to account for possible biases and to avoid

reflexive responses to highly-charged emotions



Respond

Recognize

Reflect

Reframe

Respond

Freeze exercise





values)

Reframe your self-talk to account for possible biases and to avoid

reflexive responses to highly-charged emotions

Respond with a decision consistent with your principles, values

and beliefs

Triangles of Influence



What do I have to think?

What do I have to do?

What do I want them to think?

How do I want them to feel?

What do I want them to do?

Others

The Smart Money

PhilosophyWhenever you need money,

there’s a smart place to get it



The Smart Money Philosophy prepares clients for the

certainty of uncertainty



Smart Money Philosophy: a profoundly simple outline


Death(financial implications)

Life(financial implications)

Sickness, injury,

disability, accidentsGood health

Poor markets

& weak

economy

Strong

markets &

strong

economy


Questions?


Thank you


Chuck Wachendorfer

[email protected]

www.think2perform.com

a think2perform program

think2perform.com | 706 2nd ave s, #271, minneapolis, mn 55402

differentiating your firm with clients and prospects€¦ · differentiating your firm with clients...

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