behavioral financial advice and your clients · behavioral financial advice and your clients 5...

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Behavioral Financial Advice and Your Clients

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Behavioral Financial Advice and Your Clients ii

Table of ContentsModule 1: Key Behavioral Financial Advice Phrases 1

Module 1: Talking About Behavioral Financial Advice Reflection Questions 2

Module 1: Introducing Behavioral Financial Advice to Your Clients: Notes from Video 3

Module 1: Introducing Behavioral Financial Advice Script 4

Module 2: Introducing the Values Card Exercise to Your Clients Script 5

Module 2: Alignment Model Template Williams Family Example 6

Module 3: Certainty of Uncertainty Template 7

Module 3: Introducing the Certainty of Uncertainty and the Smart Money Philosophy Script. 8

Module 3: Williams Family Case Review 9

Module 4: Introducing the 4Rs to your clients 10

Module 4: Introducing the 4Rs Script 11

Module 4: Questioning Template 12

Module 6: Behavioral Competency Levels 13

Module 6: My Behavioral Competency Levels 14

Module 6: Top Ten Questions to Ask a Financial Advisor 15

Module 6: Behavioral Financial Advice Self Assessment Reflection Questions 16

Appendix: Behavioral Financial Advice Tools 17Module 1: Behavioral Financial Advice Guidelines Checklist 18

Module 2: Values Card Template 19

Module 2: Alignment Model Template 20

Module 3: The Certainty of Uncertainty Template 21

Module 4: Questions to Ask your Clients When Using the 4Rs 22

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Behavioral Financial Advice and Your Clients 1

Module 1: Key Behavioral Financial Advice Phrases• Investors (or “consumers” or “people approaching retirement” or “people already retired” or “my clients” or

“young professionals”) are more aware than ever that they are facing an uncertain future.• My expertise, and the expertise of my team, is to prepare our clients for the certainty of uncertainty.• I can’t predict the future, but I help my clients prepare for the future.• Investments work, investors don’t.• Data shows that over time investments work better than investors. That is true because emotions, such as

fear or greed or exuberance, influence decision making. Whether it’s real estate or stocks or bonds or gold or silver, it is emotionally easy to buy high because of exuberance or sell low because of fear.

• A big part of my job is to help my clients make rational decisions in the presence of competing and difficult to deal with emotions.

• Unfortunately, irrational decision making trumps high IQ every time. • People who reflect on their values before making a decision of almost any kind, including a financial

decision, make better decisions. Values reflection won’t make you smarter, but values reflection will make you more rational.

• If you follow my advice, which will be comprehensive in nature, I can assure you that whenever you need money and for whatever the reason, there will be a smart place to get it. I call that the “Smart Money Philosophy” and it’s a lot different than trying to put all of your money in the smartest possible place.

• My team and I prepare our clients for the possibility of a long life or a life that is prematurely shortened; a healthy life or one that isn’t; good times and strong markets or hard times and weak markets. It sounds simple, but it isn’t easy.

• The short story is I help my clients align their decisions with their goals and their goals with their values, and I do that in a way that it prepares them for the certainty of uncertainty.

• Traditional finance principles are based on the premise that investors and consumers will make rational decisions without bias and essentially, will trade off decisions based on risk and reward potential. It is interesting to believe that everyone is going to be rational, when in reality, people frequently behave irrationally. Behavioral finance helps understand this reality, that people often behave irrationally and in a biased manner.

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Module 1: Talking About Behavioral Financial Advice Reflection Questions1. How ready are you to talk about Behavioral Financial Advice with other people?

2. How do you plan to practice talking about Behavioral Financial Advice with other people?

3. What are some of the things you would say when talking about Behavioral Financial Advice with your clients?

4. What are some questions you think your clients will have about Behavioral Financial Advice?

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Module 1: Introducing Behavioral Financial Advice to Your Clients: Notes from Video

Use the space below to take notes from the video.

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Module 1: Introducing Behavioral Financial Advice Script

Use the space below to begin working on your own script or notes to introduce behavioral financial advice to your clients.

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Module 2: Introducing the Values Card Exercise to Your Clients Script

Mr. and/or Ms. Client, I’d like to know what your values are. Because the values are the boundaries that I know you use every single day in making decisions not just about your money, but in general, in all aspects of your life. And what we’ve found is that as people get older some of their values may change, so this won’t be the last time that we go through this exercise. We may do this once a year, or as I see material changes in your financial situation we may revisit them. The thinking or the notion here being that if you and I are clear on your values, then we increase the likelihood that your decision making is more consistent with those values.

So I have a deck of cards here that I want to take you through, and it will take about 15 or 20 minutes to work through this, but I’m confident that this will be helpful—not only to me, but it will also be helpful to you.

So the first step is, I would like to have you take the cards out of the deck, and you can go ahead and discard the blank cards and discard the directions. But you’ll see that, on each card, there’s a value and a definition. Now, just because there’s only 52 cards in this deck, that doesn’t mean that there are only 52 values. But for the sake of this exercise, it’s going to help crystallize what your most important values are.

Take that deck of cards and divide it into two piles. One is “this is important to me,” and the other pile is “this is less important or not important to me.” It doesn’t matter how many cards are in each pile, but go ahead and give it a try.

Now, you’ve completed that first step. The next step then is to take the stack of cards that are important to you and narrow that down to 15. So what I’d like you to do is look through each card, read the definition, think about what’s important, think about how you’ve made decisions in the past, and narrow that deck of cards down to 15.

How was that process for you? Was that difficult or easy? What questions were you asking yourself as you nar-rowed that deck down to 15?

Now, step three, is to take that stack of 15, discard the rest, and take the 15 and narrow it down to 10.

How was that for you? What questions were you asking yourself to get it down to 10 cards?

Now the final step is taking the stack of 10 cards and getting down to 5. So lay out all 10 and eliminate 5. Now, you’ve come up with your top five values. Let’s talk about why you chose those 5, how you chose them, and why they are important to you.

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Module 2: Alignment Model Template Williams Family Example

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Module 3: Certainty of Uncertainty Template

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Module 3: Introducing the Certainty of Uncertainty and the Smart Money Philosophy Script.

Use the space below to begin working on your own script or notes to introduce the Certainty of Uncertainty and the Smart Money Philosophy to clients.

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Module 3: Williams Family Case Review

Instructions

1. Read the Williams Family Case Study in the Prepare section of Module 3.2. 2. In the spaces below, note your Smart Money Philosophy recommendations for the Williams Family. 3. Once you are finished, compare your answers to the expert answers in the course.

o Untimely Death

o Alive But Not Healthy and/or Not Working

o Alive, Healthy, and Working

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Module 4: Introducing the 4Rs to your clients

Introducing the 4Rs to your clients

We’ve all experienced that although models like the Alignment Model are simple to look at and understand, living in alignment is actually very hard. One of the reasons that living in alignment is very hard is that emotions often get the better of us.

As I’ve mentioned before, the reality is that it all comes down to being able to make good decisions in the presence of competing and often times difficult-to-deal-with emotions. Sometimes we’re overconfident. Other times we are overly cautious. These extremes lead to impaired decision-making. And so, the living in alignment concept is simple, but not easy.

One of the tools that I will be using and would like to introduce to you that will help us better align our decisions with our goals and our values is what we call the 4Rs. I’ll be sharing the 4Rs with you and will also be employ-ing the 4Rs as I work with you. And of course, I encourage you to consider them in your own life.

The 4Rs stand for Recognizing, Reflecting, Reframing, and Responding. Let me tell you what each of those 4 Rs really mean and what we are going to do with them.

The first R is Recognizing the situation that we are in and recognizing our personal reality—what I’m thinking about, how I am feeling, what’s happening with me physiologically. It is recognizing if I’m in the best possible emotional state to make a decision. That’s a recognition moment that each of us will want to be going to—I will want to do this for myself, but I’ll also want to be recognizing the situation that you are in.

The second R, Reflecting, happens after we recognize the experience that we’re having and we’ll want to re-flect on the big picture, on the long term, on the values that we have. And, we will want to reflect on whether or not we are being influenced in any way by biases that can impair our decision-making.

Then, we will exercise the third R, Reframing, which is almost re-describing how that situation could be thought about. In that process, we might want to calm ourselves down and take a few deep breaths—thinking about the things that really matter and that we really care about.

Finally, the fourth R, Responding, is about me responding to you with the right advice and you responding with the right decision.

These are the 4Rs. They are going to help me help you align your decision-making reality with your goals, and your goals with your values.

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Module 4: Introducing the 4Rs Script

Use the space below to begin working on your own script or notes to introduce the 4Rs to clients.

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Module 4: Questioning Template

Use this template to practice working on the 4Rs with clients.

Recognize Beverly’s Experience• Thoughts• Emotions• Physiology/Action

Recognize Josh’s Experience• Thoughts• Emotions• Physiology/Action

Reflect:

Reframe:

Respond:

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Module 6: Behavioral Competency Levels

Integrity Client Service Orientation

Concern for Order/Quality Teamwork Self-

ConfidenceAchievement Orientation

Level 1

Takes actions which are consistent with values and beliefs

Follows up Shows general concern for order and clarity

Cooperates Presents self confidently

Has a standard of excellence

Level 2

Acts on values when it is not easy to do so

Maintains clear communication

Checks own work

Expresses positive expectations of team

Acts independently

Creates measures of progress or results against a standard of excellence not imposed by others

Level 3

Takes action based on values when significant cost or risk is associated with doing so

Takes personal responsibility

Monitors own or others’ work for order

Solicits inputs States confidence in own ability

Improves performance

Level 4

Takes action for the client

Monitors data or projects

Encourages others

Chooses challenges or conflict

Sets challenging goals and cites pre/post data to show accomplishments

Level 5

Addresses underlying client needs

Builds team spirit

Chooses extremely challenging situations

Performs return on investment and cost-benefit analyses

Level 6

Uses a long-term perspective in addressing a client’s needs

Resolves conflict

Takes calculated entrepreneurial risks

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Module 6: My Behavioral Competency Levels1. What level do you think you are currently performing at for each behavioral competency?




Level

2. Choose one of the competencies above, and give an example of something you have done that shows you’ve achieved that level of that competency.

3. What level do you think you should be at in order to be the most effective behavioral financial advisorTM for your clients? (Note: This may not be the highest level for each and every competency—some may not be appropriate or even feasible in conjunction with others.)




Level

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Module 6: Top Ten Questions to Ask a Financial Advisor1. What are your most important values?

2. What is the one thing your clients say most often about you?

3. Can you tell me about a time when a client wanted to make a financial decision that you didn’t think was in the client’s best interest? How did you handle that?

4. Can you tell me about a situation in which you made a mistake dealing with a client? How did you handle that?

5. Tell me about how you handle your working relationship with your most difficult client. What do you do that’s different from how you act in your relationship with your favorite client?

6. What services do you personally provide that I might not expect from another advisor?

7. How do you make sure that your clients always know where they stand relative to their financial goals and life goals?

8. Can you tell me about a situation in which you worked with another professional inside or outside your firm to help meet a client’s needs? Who do you work with and what was your relationship with him or her like?

9. How have you personally responded to market volatility, and how have you communicated your thoughts and feelings about market volatility to clients?

10. What kind of return can I expect if I asked you to manage my investments?

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Module 6: Behavioral Financial Advice Self Assessment Reflection Questions1. What competency did you choose to work on?

2. Did you see this competency as something you are already doing well at or something that needs improvement?

3. Why did you choose to work on that competency?

4. How do you feel this competency will help your performance as an advisor?

5. How do you feel your clients will benefit from you working on this competency?

6. What goal(s) can you set in order to improve yourself in this competency area?

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Appendix: Behavioral Financial Advice Tools

The following pages include tools that you can use in your practice when working with clients. We encourage you to print off copies of these pages and keep them for future reference.

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Module 1: Behavioral Financial Advice Guidelines Checklist

Guideline 1. Setting the Stage for Behavioral Financial Advice

Guideline 2. Preparing Your Clients for the Certainty of Uncertainty

Guideline 3. The Smart Money Philosophy

Guideline 4. Introducing the Alignment Model and the Values Exercise

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Module 2: Values Card Template

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Module 2: Alignment Model Template

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Module 3: The Certainty of Uncertainty Template

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Module 4: Questions to Ask your Clients When Using the 4Rs

Recognize• How are you feeling?• What are you thinking? • What’s on your mind?• What do you want to do today?

Reflect• Would it be okay if we step back and revisit your goals and values? (Complete the values exercise if you

haven’t done so already.)• Have your goals changed?• Have your values changed? (Complete the values exercise if you haven’t done so already.)• Tell me again what’s important about the values you’ve chosen.• Tell me how your goals connect to your values.• Tell me how what you want to do today connects with your goals and values.

Reframe• What do you think your other options are?• I know what you want to do today is “A”, what other choices do you think you have? (Listen.) That is one

option (said in a positive tone). There are other options as well.• Do you mind if I weigh in with what I think your options are?• Tell me what you think the tradeoffs are with each option. (Listen as they go through each option. If they

miss something, then ask the next question.)• Do you mind if I weigh in with what I think your tradeoffs are, as well as advantages and/or disadvantages?

Respond• Based on what we discussed here today, what do you think your best choice is?• Can I weigh in with what I think your best choice is?• What would you like to do in this situation?

behavioral financial advice and your clients · behavioral financial advice and your clients 5...

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