- What is behavioral finance and why is it important?
- What are the three biggest drivers of client behavior?
- How can technology help you influence better investment decisions?
Chana Schoenberger: (
Hello. Welcome to our panel on behavioral finance. I have with me three experts today. They are Lindsey bell, the chief markets and money strategist at Ally; Mallon FitzPatrick, a managing director at Robertson Stephens Wealth Management, and Sonya Lutter, the of research and academy at Herbers & company. Thanks for joining me, everybody.
Sonya Lutter: (
Thank you. Thank
Chana Schoenberger: (
You. Good to meet here. We're gonna be talking about behavioral finance today. So behavioral finance is how you study and apply psychology for investment outcomes. And this is a technique and a body of research that advisors are increasingly trying to use with their clients because they understand that we need to understand how people's minds work in order to get it, how they think about money and how that helps them be successful in terms of meeting their investment goals. So, should we start first of all, by just talking about what is behavioral finance and how are advisors using it? So do you wanna kick us off here?
Sonya Lutter: (
Sure. I would love to kick us off. Um, really behavioral finance is trying to figure out why people act irrationally with their money. And for me, I think it's a bit more systemic than that. We all play different roles in our life. And actually I'm reminded of a column that Lindsey wrote recently on it was about women adding portfolio manager as just another role to what they already do. And it really highlights that when we are meeting with a financial planner, we're putting on a certain facade of, I need to be an expert with my money and I'm coming to you for help, but I don't want you to know everything about my personal finances. So I might be a little bit more reserved in that particular meeting with the financial advisor, but then I go about my daily business and I put on a different hat and I'm playing a different role as a mom or as a wife or as the postal worker and, and each of those roles we behave differently. So I think it's that understanding of the different roles that we play and how can we bring this whole system together to understand a person's personal finances, their interactions, their dynamics with the financial advisor, how the financial advisor might be influencing their decisions and those interactions that they're experiencing at home and in their social environment and in their work environment. So really looking at the holistic picture.
Chana Schoenberger: (
Great. Great. Thank you. So it's interesting because when we, when we talk about seeing an investor as a whole person, this really contrasts kind of sharply with a lot of the movements you see in the market. So for instance, the earlier year, this year, we had the whole meme stock trend where people were buying things that they saw on Reddit or read about online. And they thought, well, this, this stock is gonna go up because stocks go up in particular, it's gonna go up because Elon Musk tweeted about it or did something. And, uh, therefore I should buy this and I can, you know, I can retire early and, uh, you know, people invested and predictably, many of them lost a ton of money, but surprisingly, some of them actually made money, which sort of contrary to all the investing precepts that at everyone learned in, in business school. Um, so how do you, how do you sort of deal with a rational behavior like that when, when people, uh, see that crypto is going up or when people read about a particular investment and they, they think that, you know, a rocket emoji is enough to invest.
Chana Schoenberger: (
Lindsey, do you wanna take this one?
Lindsey Bell: (
Sure. Um, yeah, I mean, I think the developments over the last year with a lot of the different, uh, scenarios that you just laid out really, um, it gets to the fact of why behavioral finance is so important when you're, when you're an advisor, because it's the emotion that really does drive people, uh, when it comes to making decisions, especially about their money, right? Money is emotional money, is it has everything to do with your livelihood. So, um, people get excited about things. They jump into things like that, and there's things like recency bias and several other biases, um, that really play well into some of the trends that we've seen over the past year. And so as an advisor, I think what you need to do is really think about how, how do I help my client really combat these biases? And one of my favorite ways to, to think about doing that, and there's several different ways to you can go about it is, um, really pointing to the past and remembering the past.
Lindsey Bell: (
And what happened if you wanna point to the dotcom bubble and, and a story like pets.com, um, or things like that. Just reminding folks that we've seen this story play, uh, before in the past, and this is how it could put potentially turn out that doesn't mean you can't be invested in any of these types of, of fads or trends that are driving your emotions, but be, be thoughtful and cognizant about how much money and how much of your portfolio, how much of your livelihood that you've worked really hard for, um, are going into those types of investments. Right? Um, so that's one way I would, would suggest combating it. Um, but then also too, what we'd like to do is really point to, to the client, to the customer. What is your goal? What is your goal? Is it a long term retirement goal or strategy? Maybe you have a shorter term goal where you wanna, you're saving for a house that you wanna buy in five or 10 years, maybe you wanna upgrade or whatever it is. And so really putting that, um, it in the forefront for the customer to really remember and think about what, what they are trying to achieve. Um, there's nothing against a little bit of fun money, but when it's, um, when it's taking over your whole investing strategy and it's throwing off your longer term goals, that's when it becomes a problem.
Chana Schoenberger: (
Yeah. One of our columnists, Alan Roth, who is a longtime financial advisor in Colorado wrote a column about this for us. And he pointed out that he encourages his clients and he does this also himself to take a small percentage of his holdings. I think he said 5%, but five or under, and just have fun with it, treat it like a Vegas account. And, um, he invested in one of the meme stocks, I think it was AMC the theater company and, uh, made quite a bit and then sold it. And that was it. It was, it was over for him. So not, not quite the tool at bubble, but just understanding the emotional behavior of investing against the backdrop of passive ETFs, which is where he mostly puts people's money. He said, it's interesting. Mallon, how do you guys conquer this problem?
Mallon FitzPatrick: (
Uh, well, it's a, it's a, it's often a problem, especially when you have, um, uh, uh, a new cycle that we have now. And I think that the, the behavior we're talking about right now is fear of missing out, right? The, the tool CRA, which you talked about. Um, and, um, how, how we handle that here at, at, at our firm is, um, we, all of our clients have a financial plan. So when we're asked about a, a, um, a hot investment, so to speak, take the client back to the financial process, the financial planning process. So, um, you know, where does this fit into your plan? How does this help you better achieve your goals? Does it put your goals at risk? Um, so once we can show them an interactive planning tool, um, you know, how this investment might, may impact their, um, their goal achievement, um, it's pretty compelling, right?
Mallon FitzPatrick: (
It's not telling them they shouldn't or should it's. They can see the actual impact. Now that's not to say, um, that they shouldn't invest anything at all, but we can understand the amount they can actually risk on, on such a thing if the, if the stock went to zero. Um, so I think really it's really important to go back to a systematic process and we use the financial planning process, um, to, to, um, to help them think through that decision. Um, and, uh, and then when they see what the decision the decision might do to their long term goals, such as retiring early, um, they can make the decision themselves. And usually they make it toward a, um, a, a, a decision that that's likely to lead to a better outcome.
Sonya Lutter: (
OK. I might jump in for a second and just add on a couple of things that I have heard in terms of listening for the process versus the content. Fun fact: I am also a trained there therapist, and that's one thing we preach about all the time is don't focus so much on the words that are coming out of a person's mouth, but look, their behaviors and the process, and try to understand what they are conveying with the words that they are saying. The words often don't match the behaviors, which is what behavioral finance is all about. So I think that's what Mallon and Lindsey and myself, we're all saying the same thing. Listen for the process, not the content.
Chana Schoenberger: (
Interesting. So one dynamic that's come up this year is inflation, which you know, whether or not you think it's here to stay. It's definitely here right now as all the economic research has shown. So I imagine that there are a lot of clients, probably thousands of them across the country who are looking at their portfolio statements and saying, wow, I'm rich. Can you believe how my portfolio is doing? I guess I can afford to do everything I've ever wanted to do. Now I'm gonna buy that lake house. And, um, this of course is not necessarily true because in many cases, inflation means that, you know, you, your money's not worth as much as it used to be. So you've got a, a big headline number there, but you can't buy as much with that money as thought you could. So when you you've reached the number you always thought you were gonna reach, but it's not enough anymore. How do you deal with that? I imagine this is a, a big place for financial therapy.
Sonya Lutter: (
Well, I'll jump in here. And I think it goes back again to living in the present and helping understand what their real goals are, their authentic goals and helping them think through that process in terms of what does it mean to have 3 million instead of the 2.5 that I was shooting for? What does that added? $500,000 by me? And what am I giving up in exchange for the, at, um, one of the biggest problems, I guess I would say is people who cannot focus on the present moment and that it's easier said than done. Like here I am saying it. And people who know me are probably laughing because I'm not very good at doing this in practice, but just thinking about not worrying so much about what I imagined the situation would be right now, and not imagining so much in terms of the, what ifs, the code, OFS, the show OFS. Um, but instead, what is life like right now and how can I live my goals to the fullest and this particular moment in time.
Lindsey Bell: (
You know, and I'll jump in too, just, um, from the inflation question. Um, a lot of times people worry that the, the stock, market's not the, the best place to be because, um, inflation can have an impact on, uh, the trajectory of stocks. Um, but if you look at the longer term data, uh, being invested in equities, in the stock market over longer periods of time, the, the, the stock market can often act as an inflationary hedge. If you think about the average return in the S and P 500 over the last 20, 30 years, it's about 8%. And I know inflation is getting a little bit hotter, but it's still better than that. And the alternative investments, you know, if you're looking at fixed income that, uh, you know, is being cut into very significantly, um, given inflationary rates now, um, offering a negative, uh, nominal rate or real nominal, a negative real rate.
Lindsey Bell: (
So those are things that you, you have to take into consideration and really helping your, your client understand what inflation actually means to them. Is it better to take the money out now versus wait until later again, what Sonya was saying really accessing what your goals and your needs are near term versus longer term, and really just kind of addressing their concerns, have their goals changed versus the current day situation, and is the current day situation the way they're invested, the way you as an advisor, have them invested or suggested that they be invested, um, does that need to necessarily change in here now? And so I think it's really just helping them understand what's going on and then how to think about it and how that changes their long term, um, goals and dreams.
Mallon FitzPatrick: (
And I'm gonna sound like a broken record here, but this is a great thing that you can again, show in, in the context of their financial plan, right? So once you have base plan, and now we're worried about inflation, so let's run some inflationary, um, uh, scenarios. So 5% this year, a doomsday scenario where you have 10, 14% and see how resilient their financial plans are to those scenarios. Um, again, once they see that, um, that helps change their behavior, they attempt to do it themselves. If, if there needs to be a, um, a behavioral change and, and you can show them how that might impact goals, a, a frequent goal or a common goal is, is retirement or retirement early. So what does a high inflation environment, how does that impact, um, that goal and what are the risks to meeting that goal? Um, so if we take it back to the process and use technology to, um, to help them make their decisions or help them understand their situation, um, it helps on the, on the behavioral component of, of our discussions.
Chana Schoenberger: (
So one of the things that happened in the last two years is that a lot of people looked at their lives during the pandemic, and they came to the fairly rational decision that they were doing it wrong, and they wanted to make major life changes. So be with a different partner split with the partner they were with marry the partner they were with, or live in a different place, urban versus rural, closer to family, farther from family, more travel, less travel, you know, know, build a, uh, Cita in your backyard for the in-laws. There were all sorts of things that people decided to do that had not been in their financial plan. How do you deal with that? Um, as a behavioral finance thing, how do you, how do you talk to clients about the ways in which their plans are changing? And there's always been this sort of idea that you shouldn't make sudden decisions in a, a crisis situation. But this has gone on long enough now that people do often have an idea what it is they wanna do differently.
Lindsey Bell: (
Yeah. I mean, I'll start. Um, I think that it's really, again, looking, looking at the plan, looking at the current situation they're in. I don't think that, you know, your job as an advisor is to tell somebody they can't do something or shouldn't do something it's a little more financially irresponsible. Um, your job is to help them figure out how to get it done and how to do it in, in a safe way. And so I think looking at the grander picture again, um, and using the process and tools in place, uh, I is the key starting point. And then really looking at, when you look at the bigger picture, where are some, you know, where's the push and pull gonna come from? What are some things that you're going have to maybe give up to get what you you want right now, whether it's moving, building that new house further out, away and away from the city or whatever that is, um, going through a divorce, changing your lifestyle, things like that.
Lindsey Bell: (
You need to just really look at what, what are the options that you have on the table to achieve what you want to do? And I think think a lot of this can really come out in that initial conversation with the advisor. Um, and what we like to do, um, at Ally is we're training. Our advisors is really, um, have them start with, with the basic questions about getting to know their customer and getting to know like what Sonya said, how, how do these people think about things, especially money, but how do they make decisions? What are they doing? What are their actions to achieve the goals that they are currently, um, striving for figuring that out, then understanding what the symptoms are, uh, for the goals that they have from a financial perspective, what might be complications along the way, maybe something like this comes up where you change your mind mid cycle. Um, and then how do you come up with the cure or the solution? And it's not that you come up with the cure or the solution right then, and there it's really about working with the client to understand how they think about getting to the solution or what would be, um, an acceptable way for them to get to the solution. So it's understanding risk tolerance and all those other things, but then also really pulling in that behavioral finance side.
Chana Schoenberger: (
Definitely. Yeah. Okay. Um, when we look at client behavior overall, what would you guys say are the biggest drivers? What makes people do what they do?
Mallon FitzPatrick: (
Um, I'll start out. Um, I, I think it, um, I think our, our behaviors are, are, are most driven by our past experiences, um, particularly what we experienced as, as a young adult. And so, um, for example, if you, if you grew up in the, in the seventies, um, with high inflation, uh, bonds sound like a wealth destroyer, right? So you have a bias against those types of, um, those types of investments. Um, if you, if you grew up in, um, in the time we're experiencing now you are rah rah stocks, right? So a lot of that depends on, on the, the market environment. Um, and just on spending, if you grew up in a, um, a very wealthy household, your, your sense of, of risk and spending is very different than someone who didn't grow up as fortunate, right? So our behaviors are, are influenced by where we came from, um, and, and learned experience, uh, sorry, our experiences that, that, that through our entire life are far more compelling than anything we can read about or our financial advisor can tell us about.
Mallon FitzPatrick: (
Um, so, uh, it's important. I think, you know, you can't always change behavior. Um, um, if you think that it, it, um, will negatively impact their plan, but what you can do is understand where those, those clients are coming from, um, to help assess, uh, work together to assess their financial behavior. And there's many tools you can do that, uh, which is a good starting point for a conversation with the client. Um, so when they might have an objection or bias to a decision, you believe is a positive outcome, you can go back to a behavioral finance profile and say, well, could this be, this, is that why you're resistant? So we can't always change it. It's important to be aware of, um, of behavior. Um, and, um, uh, you know, you it's it's, you can directly or indirectly address it, but again, it's important, most important to be aware of it.
Lindsey Bell: (
Yeah. I mean, I would, I would absolutely echo everything Mallon just said it, I think when it comes with our, to our relationship with money, um, that's built from a very, very young age. So your experiences, um, the type of family you grew up in, um, the, the period of time that you grew up in, understanding what money was and what it meant to you-- always gonna have a major, major impact. But also I think the other thing that we try to think about when we think about our client and, and what's driving their decisions is really what's the most important to them. And usually what you find is, is that it's, it's, people's families, it's, it's people's health, and it's their homes that are key drivers in any monetary decision that they're making. So we try to always keep that in the back of our mind to really understand, um, what customer, what client we're talking to, how that's gonna weigh in on any decision that they make. So that's the other way we think about it.
Sonya Lutter: (
I love that without even practicing, we're all coming back to this idea of an empathetic approach, both for the client, having empathy for themself, this understanding of their past and how that's influencing their present day, but also empathy on the side of the financial planner for respecting the client's values and, and their own perspectives and not being judgmental, even if it's something that you don't necessarily agree with, but having that shared empathy between the advisor and the client is so important and having that empathy for ourself, and maybe another thing that I would add onto driving a driver for client behavior is physiological stress. And when our brain is unable to process events, um, rationally really what's happening is this physiological response of, uh, the flight or fight response. And when our brain enters into that pattern, it's very hard to make decisions and very hard to think about future oriented actions. We are, are living right there in that moment and making reactions based off of emotions and, and just quick decisions based off of past experiences. So helping clients get out of that heightened physiological state, I think is a really key driver in terms of getting them to implement their financial plan.
Mallon FitzPatrick: (
And just add on to what Sonya was saying, a client going through a transition, like a divorce or a death. Um, it's not a great time to talk about retirement planning, right? So you have to triage what, what the client's going through, right? So let's, let's get them through as best we can help them get through that divorce or that life change. Um, we can create a list of other things that need to happen, but let's, let's focus on the present. Let's focus on what's likely where, where the client's head's at and what we're likely to get done or accomplished in the short term while keeping an eye on the long term. I think that's, that's a good point, Sonya.
Chana Schoenberger: (
So when we talk about this, another dynamic that I think advisors are more focused on now is how to get both people in a relationship into the room. So it's, it's been sort of traditional that if it's a, a, a man-woman couple that typically the man is the one who's more engaged with the advisor and for a variety of reasons, that's no longer necessarily the case, but there are still a lot of women, even professional women who don't feel that they have the financial knowledge to come into the room with their advisor and be the one asking the questions or leaving the relationship even as an equal partner, but certainly not as a leader. And I, I find this with my own friends. I can't tell you how many women I talk to who run groups on Wall Street. Can't tell you what their mortgage rate is because my husband does that. You know, I wouldn't, I wouldn't know that, which is hilarious because in their own lives, they are extremely accomplished professional people. Um, how do advisors get both parties to come to the table and to feel like they have ownership over their money?
Sonya Lutter: (
I love this question. Oh, go ahead, Lindsey. I'll let you start.
Lindsey Bell: (
No, go ahead. Go for it.
Sonya Lutter: (
Well, I love this question because couples are such an interesting dynamic and working through all of those various elements that come into play there. And I would say really with the financial advisor, the thing I do is practice empathy and pay attention to what's going on and notice that the wife is not saying anything. If in that particular example that you gave us and really building upon this idea of independence, the example you gave us all too familiar in terms of here, you have this very successful, a woman she's very independent and she doesn't need help. She's got it taken care of. She's just handled the last two years, homeschooling her children and figuring out how to do her job at home and keep the house clean and an assortment of daily stressors that have piled up. And now she's going to financial advisor who's telling her what she needs to do.
Sonya Lutter: (
And that's really hard to give up some of that control in this particular example. I mean, we could go through a number of different scenarios, but the one you gave is just so perfect in terms of how relatable it is and helping give that woman a sense of confidence that yes, she can be a part of this financial plan and she already is independent, but how do you, um, help give her some of that self-efficacy that maybe she's looking for? So guiding the conversation towards the woman, and even if the man in that particular situation is the one who called the appointment, and maybe he's more vocal during the meetings, take a break from that and focus all of your attention on the person who's not saying quite as much, because more than likely they have their own ideas and they are likely quite independent and ready to take action when given just the tiniest little space to implement some of their own ideas.
Lindsey Bell: (
Yeah, I think that's that part that last part you said is so important for a financial advisor. You really need to, you need to read the room, right? And so if you have a couple in front of you and one, person's not saying anything you need to let them know that you are the neutral non-biased party in the room, and you are here to help the couple as a combined entity, more or less. And if you don't understand, you're not able to understand the, the wants, needs and desires of both people sitting in front of you. You're not gonna be able to do them, uh, you know, justice with, with the plan that you're going to put together, because you understand where both are coming from and you need to be open, uh, in that conversation, I think. Um, and I think that's really the most important you need to be again, asking the person that's being a little quiet, what their feelings are, what their thoughts are, what their goals are for their money.
Lindsey Bell: (
Now, I'm not saying you're gonna be able to solve, solve all the issues that might lie between between the couple and what they're trying to achieve, uh, monetarily. Um, but you're there to, to again, be that non-biased, uh, third party in the room and in that discussion. So I think that's, that's really important. And then I also think that if you're the client or customer, um, and you are meeting with a financial advisor, you need to meet with, you know, I always say meet with multiple advisors because this is somebody that you're gonna have to feel very comfortable with. And as a couple, you should both feel comfortable with this person that either one of you can call them at any time when something is happening, heaven forbid something happened to one of you. Um, and you need to make some major decisions, financial decisions. You need to be comfortable with the person that you're talking to. And, you know, you need to also understand too, as women, we need to understand that there are no dumb questions either. It's your money, again, it's your livelihood. It comes back to you work very hard to, to, uh, earn that money, to earn that income. Um, I always tell people, you need to know where your money's at and how it's working for you.
Chana Schoenberger: (
Definitely. Yeah, no, that makes sense.
Mallon FitzPatrick: (
I would say, I would say that, um, uh, inclusion from the start is an important way, um, to kick off the relationship. So emails out to, um, uh, maybe a husband who seems to be controlling or so forth, but email to both the, the, the, uh, husband and wife, um, have them both. If you have a risk tolerance questionnaire in your process, have them both fill that out, um, have them both fill out client profiles, however it fits into your process, but inclusion, inclusion, and inclusion. And then, um, go going back to, you know, reading the room or so forth that that's important too. Treat, treat both equally in the room. Um, but I'm happy to say from, from, um, from my experience over the years, um, that more and more, I I'm seeing it equal, uh, and equal stage for both for both partners. And I think that's an really nice, important thing to see.
Chana Schoenberger: (
I actually tried this myself just for fun. Um, I, I got a new financial advisor not long ago and went into the meeting with a list of questions because we had just done an article about questions to ask a financial advisor before you hire them. And I said, I have these questions here and just went through them with the, the advisor. And, uh, for, I tried to not care about what it sounded like, and it worked well. He managed to answer them all.
Lindsey Bell: (
Good, good for you.
Chana Schoenberger: (
Yeah. You know, you have to, you have to live what you, what you're telling other people to do. Right. Um, absolutely. So this is a, this is a tech conference. So I wanted to ask a little bit about technology. First of all, I just wanted to remind everybody watching us that you can chat in your questions and we will try to answer them for you. We've already gotten a number of good questions from the audience so far. Um, when you think about technology, how can tech help you influence clients to make better investment decisions?
Lindsey Bell: (
Um, I can, I'll kick it off. Uh, I think technology is so, so important. It's it makes, uh, it makes it a lot easier for the client to view their financial picture, who their holistic picture and that's, that is really important. Um, so they might have assets in, um, a 401k or an IRA, or maybe they have an individual self-directed, um, trading account. Um, you know, there could be a couple different things, uh, or, or parts of their portfolio that you may not be managing be, but being able to see everything all in one place, I think is huge. And obviously there's been a major trend towards that, um, over the last several years, but then also technology can help the client really get focused on what their goals are from a visual perspective. And so to me, that's one of the biggest benefits that technology provides is that visual, visual aspect of seeing what their goals is seeing, how far they are from their goals, the progress that they're making, um, and their ability to, you know, tweak or, or, or test, uh, different scenarios, uh, for reaching their goals. So I, I think technology is it's putting the power. Um, it's putting the power in the hands of the customer a little bit more so now, um, even though obviously you need the human advisor there to finish the touch and we, we preach here, you know, it's, it's all about the digital experience with the human touch. So making sure that the, the customer understands what they're seeing, um, on the portal on the platform, um, and they're, they're able to understand it easily. So I think it's a little bit of both
Mallon FitzPatrick: (
Now. I I'll just add to that, is that, um, so it's, it's it, technology is great and we have some great tools nowadays, um, but it it's, it's your process and technology, I think. Um, and, and, and the advisor themselves. Um, so there's some great tools for understanding risk tolerance out there. Some are econometrics, some are psychometric in nature, but of course this is where the human comes involved. Risk, risk tolerance is, is an art and science, right? So, um, you can, you can quantify it, but you also have to understood, understand how they behave maybe 2008 or early 2020 to get an indicator of what their real risk tolerance are. Um, financial behavior, uh, uh, questionnaires like DNA behavior out there. Um, that's a great way to profile someone, um, to understand some of, uh, how they may behave in certain situations. Um, and then, uh, the interactive planning software that Lindsey, um, touched on, which is, um, we use E-money's decision center.
Mallon FitzPatrick: (
And, um, once we, the client base cash flows and, and net worth, we can, um, program customized scenarios to them buying a house in Florida, moving to Alaska. I want to take a sabbatical, all those kinds of things and, and how those decisions impact their, their plans. So, um, again, going back to, it's hard to tell them what to do, but we can show them what the impact of decisions may do to their long time and financial goals. So lots of, lots of tools out there I'm looking forward to when they become more integrated. Um, we, we have to build our own platform to integrate them all. Um, but I, I'm looking forward to the day when it's off the shelf,
Sonya Lutter: (
I am willing to take the conversation a slightly different direction. That question in terms of one of the biggest drivers and client behavior, in my opinion, is this idea of physiological stress. And we have technology readily available that assesses a person's stress level. If you have any of the technological watches, it tells us when our heart rate is speeding up or slowing down, um, some of 'em can even sense other indicators of physiological stress, maybe how much you're sweating or what your skin temperature is, all indicators that, uh, something's going on in our brain, that's impacting our decision making. If we could incorporate some of those automatic elements into the financial planning process, it would be huge to help people understand that, you know what, right now I am not in a good head space to be making a long term financial decision. I don't know that that technology has been integrated as Mallon indicated, um, previously, but if we could do that, I think that would be a real game changer.
Chana Schoenberger: (
So almost like a, a way to use your watch or your phone to collect your physiological data and have the advisor with permission, get that data. So they would know what your stress level was while you were having the conversation.
Sonya Lutter: (
Absolutely.
Speaker 5: (
Huh.
Chana Schoenberger: (
I guess there's no reason why that wouldn't be possible, right?
Sonya Lutter: (
Yeah. It's definitely possible.
Chana Schoenberger: (
It's all in apple health somewhere or Google.
Mallon FitzPatrick: (
Uh, well, we get
Speaker 6: (
Pretty, pretty close with our clients. I'm not, I don't know if we're there to,
Mallon FitzPatrick: (
To sharing health data yet at this point, but ,
Chana Schoenberger: (
It's definitely a, a new frontier, but you know, this, the, the generation millennials and certainly gen Zs much has been written about how they don't view the sharing of information online to, to be a problem. They, they are not interested in the idea of internet privacy as a group. They, they don't have a problem with posting about where they are or, or what they're doing or who their friends are, or, you know, what their transactions are. They post all about all these things online. So it's possible that they might be inclined to share this information with their advisor just as a, an API feed. That's a cool idea. I like that.
Lindsey Bell: (
Yeah. I mean, um, I, I, I do think too, like getting back to where we started was really that the pandemic, uh, really kind of changed things. Um, you know, we became, as a society, we became very quickly, it became normal to be on zoom meetings in front of the camera, in front of the computer all the time using technology and digitalization to our advantage. Um, so maybe sharing that information, uh, becomes a little bit easier when you know that if you're able to share your emotional state or physiological state, um, it could help you, you or could prevent you from losing money or could potentially help you make more money. So, yeah, it's definitely an interesting concept. I'd love to see where it goes, uh, in the future.
Mallon FitzPatrick: (
My only concern with, with that would be the observation principle, where if, you know, you're being monitored, when someone asks you questions, it's hard to get an objective view. Right. So that would be my only concern there. So if they didn't know that they were being monitored, that might be ideal. So that maybe facial recognition, things like that, they can determine stress.
Lindsey Bell: (
That's a good point. That goes back to, you know, getting your blood pressure taken .
Chana Schoenberger: (
Yeah. Right. But it's, it's true that if you wear one of these watches or another one of the, uh, health wearables were always being monitored. And after a while that that sensation kind of goes away and you don't remember it anymore.
Lindsey Bell: (
Wow.
Mallon FitzPatrick: (
I'm not giving that I'm not giving that stream, that data to a third party. I mean, well, I, I, I guess , but not a third party that I am speaking with at the moment. Right.
Lindsey Bell: (
Who knows what the future holds.
Chana Schoenberger: (
. Right, right, right. And, and also generationally, you know, I'm, I'm guessing that you are not a, a gen Z, so you might have more generational impediments to that, you know, mentally
Lindsey Bell: (
Mm-hmm
Chana Schoenberger: (
than others would. Okay. I just wanted to bring it back really quickly to the idea of research, because of course the difference between behavioral finance and financial therapy is that it's, it's really grounded in academic research. Do you guys wanna talk about some recent research that you find particularly interesting in this area? Anything that's been published recently?
Sonya Lutter: (
I will say that in the last several months, some of the most exciting research that I have read is research that I'm working on right, right now at Herbers & company. So I'm cheating a little bit, but it's coming out very soon. And it really is very applicable data with consumers who are already working with a financial planner and consumers who are not working with a financial planner and looking at some of those trends that we're seeing and really phenomenal stuff that's coming. Um, I would, another thing that I've been looking at is a lot of research in the psychology area, um, and really seeing how some of those trends with mental health can be applied to financial planning and what can be learned from the pandemic mental health wise and ways of applying a therapeutic approach in financial planning without being a therapist.
Lindsey Bell: (
Um, I would jump in, I, well, it's not research it's, it's a book, um, by Dr. Daniel Crosby, uh, who also has a podcast. Uh, the laws of wealth is a book that I find very interesting. In 2017 it was named the investment book of the year by, uh, Axiom business book awards. And it really talks about how you can practically recognize some of the behavioral finance biases, how you can combat them and also, um, how you can use them to your advantage. So, um, from a practical standpoint, um, I, I really like the book. It, it tells you how to, to harness some of these things. And, and again, like I said, use 'em to your advantage.
Mallon FitzPatrick: (
Uh, I, I, I enjoyed the, um, the C F P uh, book on psychology, which gathers a lot of data from, um, from researchers in the field. I think behavioral finance crosses a lot of discipline. So I think it's, it's, it's, um, it's important to bring it all it's it is important to read multiple sources, a great fun book to read out there that was very practical, was the psychology of money by Morgan Housel. Um, that, that came out last year. Um, it's, it's on Audiobook as well. Um, and, uh, I think he's around the country speaking and, and the, the great program out there that that is kind of on the forefront is, uh, is the, the Wharton executive program on client psychology, um, would recommend that if, if anybody wants to get a deeper knowledge into, um, behavioral finance and how it impacts clients and how to work with clients in that regard.
Chana Schoenberger: (
Great ideas.
Sonya Lutter: (
I have one more I'll throw in there. Yes, please.
Chana Schoenberger: (
Um,
Sonya Lutter: (
There's a book I'm reading right now, and I didn't start reading it because I thought it would be applicable to behavioral finance, but it turns out it really is. And it's a book by a therapist, Lori Gottlieb and it's called, maybe you should talk to someone. And it provides a really interesting perspective in terms of a therapist seeking therapy and the parallels between financial planners and their work with clients is really quite amazing. So I didn't read it, expecting it to be applicable today, but I think, um, you might wanna pick it up and take a look at it.
Chana Schoenberger: (
Interesting. Okay. We got a, a question from the audience that I'd like to ask you. Someone wants to know, as an advisor, how do you keep your own biases in check? Cuz we're people too.
Sonya Lutter: (
The book I just mentioned is perfect. You should read this book because it really talks about that dynamic of how much you should reveal to your clients and how much should be kept private and making that balance between awareness of my own biases and how that plays out in my professional interactions.
Chana Schoenberger: (
Anybody else have a take on this?
Mallon FitzPatrick: (
Yeah. So, um, so always going back to, to a process, right? That that's, that's helpful, um, uh, you know, whatever process to use, uh, you use financial planning process, um, you know, uh, you know, Kinder teaches things such as, um, you know, when you, when you hear something from a client, be empathetic to it, but let go of the thought, meaning that you feel it, but keep your thought away from it. And that's, that's how a lot of those life planners are trained. So that is a little bit more rigorous to get it's a little bit more rigorous to get to that point, but it's, um, very applicable training.
Lindsey Bell: (
Yeah. I think training is key. Um, I would say just, you know, educating yourself, going through different courses to make sure you're aware of all the different biases and how they might show up and things like that. So just, you know, staying on top of it yourself is, is, is a great way. And there's so many educational tools that you can find to do that.
Chana Schoenberger: (
The thing that would frighten me, and of course, I'm, I'm a journalist, I'm not an advisor, but if, if I were to be taking other people's financial wellness into my own hands, the thing that would frighten me would be the power of stories, right. I'm not sure what this bias is called, but it it's, it may be the recency bias. This idea that I I've just heard of something, or a friend has told me a relatively told me something and therefore that's top of mind for me. So somebody just, you know, made a million dollars on this stock or gee, someone moved to Alaska from New York City and, and really enjoyed that experience or hated the experience. So I don't think that my clients should do that. I think it's a terrible idea, but we are so suggestible. And I, I wonder, obviously there are many professions where you do have to put your own feelings out of the picture, but that seems like a hard thing to do.
Mallon FitzPatrick: (
Well, I, I, oh, I'm sorry. Sonya, wanna go ahead.
Sonya Lutter: (
Well, I think that what you're saying, Chana, is really illuminating the issue though, that you are aware that these things influence your decisions and your interactions. So just that simple ability to see that, because I heard something doesn't mean it applies to everyone is a really important element. And I think really the only way that you get there is through some of these trainings that the others are talking about, but also just being present in the moment and recognizing what the client in front of you is saying and listening to their story in that particular moment.
Lindsey Bell: (
Yeah. I mean, I think returning to, to the long term goal, what is, what is the goal we're not here to be, um, day traders, uh, we're not here to make a quick buck, we're here to make plans for the future. So I think really keeping that perspective in mind and then all, you know, I think, you know, you have that fiduciary that you can always come back to think through that, um, and make sure your fair and balanced too, in your thought process
Speaker 7: (
Mm-hmm
Mallon FitzPatrick: (
Yeah, it it's it's communication and, and frankly, the client can, can, can do what they want at the end of the day. Um, you, as planners, we have to, to let them know what the risks are, going back to what Lindsay said, of course, what are the risks to these other goals we talked about, maybe those goals has have changed, but let's, let's lay down the table. Let's talk about what you want to do. Um, this is where you were, this is what you want to do now. Um, uh, how will things have to change to, to make this happen? Um, and if you believe it's a impulsive decision, if, you know, without all the facts, let's get all the facts, right. Um, clients can do what they want and, and we just, we just, um, have to make sure that that fits into their plan and their plan may change over time. And that's why it's important to have frequent contact with them.
Chana Schoenberger: (
So it's really about keeping them accountable, keeping yourself accountable. Okay. All right. We only have a few minutes left, so I just wanna do a lightning round really quickly. We've mostly been talking about the clients and the folks who've been affected by the upper leg of the K shaped recovery after the pandemic. But let's talk about everybody else for a minute. There much has been written about, you know, the state of American personal finance and how there are many people, you know, half the people, if not more in this country who have come out of the pandemic, not nearly as well off as they were before they may have lost jobs or lost loved ones, or their prospects are somehow different. Since we're still talking about technology today, is there a way that behavioral finance techniques or, or technology can help these folks, the people who are having a harder time of, to really get their portfolios in gear or even get portfolios in the first place?
Lindsey Bell: (
Yeah. I mean, I think there's, there's a lot of tons of different apps out there. And the, the one thing we do know is that the people on the, on the other end of the spectrum, uh, a lot of them make it a priority to have access to at least, um, a cell phone, a smartphone, um, so that they can a access a lot of apps that way. Um, I think I always point to robo advisors. Uh, a lot of them have no fees or, or low fees or low entry rates, um, to, to invest in those types of, um, securities. So I always point to robo advisors. It's easy. Uh, you can, it's a hands off approach. Um, and there is technology there that helps you decide what type of portfolio may make the most sense for you. Um, so there's just, and there's just so much education out there for these types of people as well, um, that they can reach through through the internet and through, through their smartphones and smart apps.
Sonya Lutter: (
I absolutely agree with you Lindsey and adding that on the other side, that for the tech developers to normalize the experience and let consumers know that this is for them, particularly the robo advisors, it can be so accessible, but yet people don't realize how accessible it is. So really amping up that communication that you may be struggling, but you may be seeing other people around you doing amazingly well, but there is something that's here for you and you are normal and you can get past this situation.
Mallon FitzPatrick: (
Yeah. And I'm just gonna say, I, I would, I would, I would caution to, to maybe using more apps, maybe subjective, suggesting those ones, um, robo advisors, a solution for a certain set of, of clients who are, I would say more relatively self directed, um, and understand investing, um, uh, and are just looking to look, uh, to go for low cost investments. Um, but yeah, staying, staying connected, um, I think choose your news sources wisely, um, I would go with the, with the kind of more, uh, brick and mortar ones. Um, so that's just, that's just some opinions on the, on the matter. Would you, you don't want the, you don't want the, the current news cycle to, to, um, to, uh, uh, influence your, your, your investment decisions.
Chana Schoenberger: (
Great. Well, we've run out of time. Thank you so much for joining me. This has been a really edifying panel and I really enjoyed it and thanks to everyone who tuned in to watch have a great rest of the conference. Take care. Bye-bye
Lindsey Bell: (
Thank you. Thank
Mallon FitzPatrick: (
You.