Overview of Behavioral Advice: Understanding the Smart Money Philosophy

Transcription

1 presenter: doug lennick, ceo july 10, 2013 Overview of Behavioral Advice: Understanding the Smart Money Philosophy a think2perform program

2 We look like nobody else. Nicholas S. Schorsch Chairman & CEO American Realty Capital 5/22/12 You don t need a good idea every day. You just need a good idea. Trust William M. Kahane CEO American Realty Capital 5/22/12

3 The Smart Money Philosophy Why this topic? Why now? What is the Smart Money Philosophy? What is the Health and Wealth Connection? From Misery to Wisdom

4 Why This Topic and Why Now? Consumers believe that they have been let down by the financial services industry. Consumers are confused about who to trust and what to do with their assets. Consumers are not prepared for retirement and are scared about the future. A responsible mindset has emerged in the marketplace. And for those of us in this room, the integrity of the financial services industry is at stake.

5 According to the 14 th Annual World Wealth Report Clients want fundamental changes in how they re served by advisors. In particular, they want advisors to have a better grasp of their emotional and intellectual needs. The top priorities they seek from their advisors are transparency and simplicity, along with specialized advice (booth 93%) and effective risk management (90%). FA News Wealthy Investors Wary of Risk; Want More Touchy-Feely Service June 23, 2010

6 That was Then Financial Sources: % of Investors That Have Lost Trust Financial markets Financial institutions in general Government The Media Financial advisors in general Primary Financial Institutions Primary Financial Advisors Friends and Family / Personal Sources Survey: Sullivan Insights on Affluent Investors for Financial Marketers, 2009

7 And This is Now Trust is beginning to come back into the financial system. Investors respond most positively to language that conveys security and transparency. Investors are looking for firms and advisors to provide a long-term, personalized approach. Investors respond best to objective language and honesty. 2011, Rebuilding Investor Trust, Insights on Affluent Investors Research Study, Overview. Sullivan and Northstar Research Partners.

8 Investors reactions to common terms prove surprising in some cases. 2011, Rebuilding Investor Trust, Insights on Affluent Investors Research Study, Overview. Sullivan and Northstar Research Partners.

9 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.

10 Why this topic and why now? The Certainty of Uncertainty has never been more obvious than it is right now. The Dow Jones 12/31/99 closed at 11,497 03/07/00 fell to 9,796 10/09/07 rose to 14,164 03/09/09 fell to 6,547 12/31/09 closed at 10,428 12/31/10 closed at 11,578 On 6/06/13, the Down Jones closed at 15,044.

11 Why This Topic and Why Now? Financial Planning and Behavioral Advice prepare clients for the Certainty of Uncertainty. Investments continue to work better than investors (only a few exceptions). You are at your best when you prepare clients for the truth the Certainty of Uncertainty and when you do this with transparency and simplicity. Financial Planning and Behavioral Advice will help advisors help their clients have a better relationship with money (and people).

12 Investors recognize their own role in their financial futures despite the forces that are out of their control. Copyright 2012 Sullivan and Northstar Reseach Partners. All rights reserved. Reproduction, distribution, or transmission of content prohibited without prior written consent.

13 1. In the 20 years between , the annual performance of the S&P was 7.2%. FALSE 8.21% Source: 2013 DALBAR Study Quantitative Analysis of Investor Behavior

14 2. In the 20 years ending in 2012, the average performance of an equity fund investor was 4.58%. FALSE 4.25% - Investments work, investors don t Source: 2013 DALBAR Study

15 3. In the 20 years ending in 2012, the annual performance of the Barclays Aggregate Bond Index was 5.43%. FALSE 6.34% Source: 2013 DALBAR Study

16 4. In the 20 years ending in 2012, the average fixed income investor was 0.98%. TRUE 0.98% - Investments work, investors don t Source: 2013 DALBAR Study

17 5. Emotions have little or nothing to do with financial decision-making. FALSE Source: Doug Lennick conversation with Richard Peterson, author of Inside the Investor s Brain, 3/26/08

18 6. Effective leadership/influence of client behavior is primarily a function of advisors managing their own behavior effectively. TRUE Source: Think2Perform

19 7. With the rise of stress and the corresponding fall of emotional competence irrational decision-making goes up. TRUE Source: Dick Thompson, Ph.D. The Complex Relationship of Stress and Emotional Intelligence

20 8. Research shows that the competency advisors need the most for the client to have superior portfolio performance is cognitive intelligence. FALSE Source: Morally and Emotionally Competent Financial Advisors Deliver Superior Client Service and Portfolio Performance Co-copyright Think2Perform & Ameriprise Research Consortium for Research on Emotional Intelligence in Organizations

21 Why This Topic and Why Now? Effective leadership/influencing of others Effective self-management Effective decision-making Self-awareness

22 The Alignment Model Frame 1 Frame 2 Frame 3 MORAL COMPASS Principles Values Beliefs GOALS Purpose Goals Wants BEHAVIOR Thoughts Feelings Actions Ideal Self Real Self

23 The Experiential Triangle Financial Decisions are Frequently Influenced by the Emotions One Experiences as Stimulated by Some Outside Event Outside Stimulus THOUGHTS (rational center of the brain) EMOTIONS (emotional center of the brain) PHYSIOLOGY /ACTIONS (habit center of the brain)

24 Behavioral Advice & The Two-Sided Coin

25 Financial Intelligence Financial Intelligence is the capacity to make smart, responsible, values-based decisions with and about money in the presence of competing and difficult to deal with emotions. --Doug Lennick

26 What is the Smart Money Philosophy? There s no single wrong or right answer. Bill Kahane 5/22/12 The Smart Money Philosophy prepares clients for the Certainty of Uncertainty You can and should state the following: If you follow my advice, which will be comprehensive and will prepare you for the certainty of uncertainty, then whenever you need money there will be a smart place to get it. - Think2Perform

27 What is the Smart Money Philosophy? The Smart Money Philosophy prepare clients for the Certainty of Uncertainty what s uncertain? Length of life Health status of life Markets (stock, bond, real estate, etc.) Economy (GDP, recession, unemployment) Etc.

28 What is the Smart Money Philosophy? The Smart Money Philosophy: A profoundly simple outline I. Death (financial implications) II. Life (financial implications) A. Sickness, injury, disability, accidents, etc. B. Good Health 1. Poor markets and weak economy 2. Strong markets and strong economy Source: Financial Intelligence: How to Make Smart, Values-Based Decisions with Your Money and Your Life by Doug Lennick.

29 Misery: Financial Stress Leads to Poor Physical and Financial Health

30 Wisdom: Preparing for the Certainty of Uncertainty

31 If we don t perform, we don t get paid. If you don t perform, you don t get paid because you lose your client. Nicholas S. Schorsch Chairman & CEO American Realty Capital

32 Developing Differentiating Competencies Through Practicing the 4 R s Practice Makes Permanent The 4 R s Change the Source of Stimulation from Outside In to Inside Out Recognize Reflect Reframe Respond

33 Recognize Recognize your own experience of cognitive thought, emotion, and physiology/action. Recognize the experience (cognitive, emotional, physiology/action) of your clients (Remember each client is unique). Recognize what from the outside is stimulating your experience and the experience of your clients.

34 Reflect Reflect on to what degree you met your responsibility of preparing your clients for the certainty of uncertainty. Reflect on the big picture yours as well as your clients. Reflect on the long term. Reflect on your personal values and the values of your clients. Reflect on the moral principles. Reflect on the competencies that research has proven matter most.

35 Reframe Reframe your self talk to account for possible biases. Reframe your self talk to avoid reflexive responses to highly charged emotions. Reframe your self talk such that it is constructive.

36 Respond Respond with a decision consistent with moral principles. Respond with a decision consistent with your client s values. Respond with a decision consistent with the plan to achieve your client s goals. Respond with a decision consistent with your responsibility to prepare your client for the certainty of uncertainty.

37 thank you. Doug