overview of behavioral advice - understanding the …c.ymcdn.com/sites/ intellectual needs. ... the...
TRANSCRIPT
Overview of Behavioral Advice: Understanding the Smart Money Philosophy
presenter: doug lennick, ceo | july 10, 2013
a think2perform program
think2perform.com
“We look like nobody else.”
Nicholas S. SchorschChairman & CEOAmerican Realty Capital5/22/12
“You don’t need a good idea every day. You just need a good idea.”
William M. KahaneCEOAmerican Realty Capital
Trust5/22/12
the smart money philosophy
The Smart Money Philosophy
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
think2perform.com
Why This Topic and Why Now?
the smart money philosophy
• 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.
think2perform.com
According to the 14th 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
the smart money philosophy think2perform.com
That was Then…Financial Sources: % of Investors That Have Lost Trust
the smart money philosophy think2perform.com
Survey: Sullivan Insights on Affluent Investors for Financial Marketers, 2009
Financial markets
Financial institutions in general
The Media
Government
Financial advisors in general
Primary Financial Institutions
Primary Financial Advisors
Friends and Family / Personal Sources
And This is Now…
the smart money philosophy
• 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.
think2perform.com
2011, Rebuilding Investor Trust, Insights on Affluent Investors Research Study, Overview. Sullivan and Northstar Research Partners.
Investors’ reactions to common terms prove surprising in some cases.
the smart money philosophy think2perform.com
2011, Rebuilding Investor Trust, Insights on Affluent Investors Research Study, Overview. Sullivan and Northstar Research Partners.
Investors value honesty in their advisors above all else.
the smart money philosophy think2perform.com
2011, Rebuilding Investor Trust, Insights on Affluent Investors Research Study, Overview. Sullivan and Northstar Research Partners.
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.
think2perform.comthe smart money philosophy
Why This Topic and Why Now?
the smart money philosophy
• 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).
think2perform.com
Investors recognize their own role in their financial futures –despite the forces that are out of their control.
the smart money philosophy think2perform.com
Copyright 2012 Sullivan and Northstar Reseach Partners. All rights reserved. Reproduction, distribution, or transmission of content prohibited without prior written consent.
1. In the 20 years between 1993-2012, the annual performance of the S&P was 7.2%.FALSE – 8.21%
Source: 2013 DALBAR Study “ Quantitative Analysis of Investor Behavior”
the smart money philosophy think2perform.com
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
think2perform.comthe smart money philosophy
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
think2perform.comthe smart money philosophy
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
think2perform.comthe smart money philosophy
5. Emotions have little or nothing to do with financial decision-making.
FALSE
think2perform.com
Source: Doug Lennick conversation with Richard Peterson, author of Inside the Investor’s Brain, 3/26/08
the smart money philosophy
6. Effective leadership/influence of client behavior is primarily a function of advisors managing their own behavior effectively.
think2perform.com
TRUE
Source: Think2Perform
the smart money philosophy
7. With the rise of stress and the corresponding fall of emotional competence – irrational decision-making goes up.
TRUE
think2perform.com
Source: Dick Thompson, Ph.D. The Complex Relationship of Stress and Emotional Intelligence
the smart money philosophy
8. Research shows that the competency advisors need the most for the client to have superior portfolio performance is cognitive intelligence.
FALSE
the smart money philosophy think2perform.com
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
Why This Topic and Why Now?
Effective leadership/influencing of others
the smart money philosophy think2perform.com
Effective self-management
Effective decision-making
Self-awareness
The Alignment Model
the smart money philosophy think2perform.com
MORAL COMPASS
PrinciplesValuesBeliefs
GOALS
PurposeGoalsWants
BEHAVIOR
ThoughtsFeelingsActions
Frame 1 Frame 2 Frame 3
Ideal Self Real Self
The Experiential Triangle
think2perform.com
THOUGHTS(rational center
of the brain)
THOUGHTS(rational center
of the brain)
EMOTIONS(emotional center
of the brain)
EMOTIONS(emotional center
of the brain)
PHYSIOLOGY/ACTIONS
(habit centerof the brain)
PHYSIOLOGY/ACTIONS
(habit centerof the brain)
OutsideStimulus
Financial Decisions are Frequently
Influenced by the Emotions One Experiences as
Stimulated by Some Outside Event
the smart money philosophy
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
the smart money philosophy think2perform.com
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
the smart money philosophy think2perform.com
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.
the smart money philosophy think2perform.com
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
the smart money philosophy think2perform.com
Source: Financial Intelligence: How to Make Smart, Values-Based Decisions with Your Money and Your Life by Doug Lennick.
Misery: Financial Stress Leads to Poor Physical and Financial Health
the smart money philosophy think2perform.com
“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. SchorschChairman & CEO
American Realty Capital
think2perform.comthe smart money philosophy
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
the smart money philosophy think2perform.com
Recognize
the smart money philosophy
• 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.
think2perform.com
Reflect
the smart money philosophy
• 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.
think2perform.com
Reframe
the smart money philosophy
• 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.
think2perform.com
Respond
the smart money philosophy
• 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.
think2perform.com