Advisers Must Understand Clients' Personalities

Advisers can help clients by understanding how their emotions influence investment choices, according to panelists at an American Beacon Advisors event.


Frank Murtha, managing partner of MarketPsych, told event attendees that educating investors only goes so far advisers also have to consider their clients’ emotions in order to change their behaviors. The same rings true for products, which are only helpful if the adviser knows how to apply them to individual clients, said Dana Klein, vice president of sales strategy for American Beacon Advisors.

Advisers can apply behavioral finance to clients in a number of ways. To begin, they should determine where the client is coming from emotionally, rather than jumping into a discussion about money, said Richard Peterson, managing partner of MarketPsych. “That doesn’t help build the relationship,” he stressed.

Murtha added that advisers also should help clients focus on long-term goals, as behavioral studies indicate investors tend to focus on the short term.

Many personality traits determine how a client will invest, including whether the client is emotionally stable, extroverted versus introverted and open-minded versus more traditional. Emotional stability especially is a factor during periods of market volatility, Murtha said, as more “unstable” personalities will become fearful.

Trust in the financial industry has been at an all-time low since the economic recession, which is why Peterson said advisers must make it a priority to build trust with their clients. “And with [the trust level] being so low, that’s taken on a new urgency,” he added.

Advisers should utilize resources that can help them to better understand their clients’ investment decisions. Resources such as “Financial Planning Fundamentals,” which offers personalized suggestions for helping investors overcome the most problematic investing biases, are available on MarketPsych’s website. Personality tests are also available here.