Summary

According to the BeFi Barometer 2019 survey, the most frequent challenge advisors face in using behavioral finance principles in their practices is difficulty in translating theory into implementation. The goal of this white paper is to help advisors do just that. First, we help advisors understand the biases to which they may be subject. Then we review how advisor biases may be impacting their client relationships. Finally, we offer advisors specific suggestions to help build and maintain portfolios that optimize clients’ opportunity to achieve their desired outcomes given their risk preferences.

Key Points

• Advisors self-identify loss aversion, overconfidence, availability, confirmation, and recency as the behavioral biases most likely to be affecting them.
  
• Implementing a rigorous, process-driven portfolio management structure can help mitigate the impact of advisors’ and clients’ behavioral biases.
  
• The “best” portfolio for a client is one that is customized to maximize the probability of achieving their financial objectives while remaining within their investment risk comfort level.
  
• Ongoing communication is essential to ensuring a client’s portfolio remains aligned with their evolving financial needs.