- There’s a growing emphasis on psychology in financial planning as advisors explore ways to strengthen client relationships.
- Top firms on CNBC’s annual FA 100 list use behavioral finance to manage clients’ investing, estate planning and other needs.
There’s a growing emphasis on psychology in financial planning — merging traditional advice with elements of behavioral finance — as advisors explore ways to strengthen client relationships. But it’s always been important, according to firms on CNBC’s annual FA 100 list.
Many advisors say there’s a demand for psychology in financial planning expertise, according to the Certified Financial Planner Board’s 2021 Practice Analysis Study, prompting the Board to add the topic to its curriculum.
The Financial Planning Association has also explored this area, embarking on an in-depth study on advisors and their clients, which reaffirmed the value of these skills.
“The objective of understanding the psychology of financial planning is not to turn financial planners into therapists,” said CFP Board CEO Kevin Keller. “But to help professionals strengthen their listening and communication skills.”
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Some companies have integrated financial psychology when building portfolios.
Jeff Rupp, managing partner of View Capital Advisors in Dallas, a firm ranked 98th on CNBC’s FA 100 list, said financial psychology is woven into the company’s asset selection.
One of the company’s research analysts has a background in behavioral finance, and the firm often applies those concepts to its investment decision-making process, Rupp said.
“We look at what’s behind the recommendation,” he said, explaining team members may respond differently to asset suggestions based on their risk profile. “We look at how the investment team reacts.”
Asset managers may also use financial psychology when guiding clients through investment decisions, particularly when the stock market dips.
“A lot of people say ‘I can handle a 10% or 20% correction’ until it happens,” said Michael Cornfeld, owner of Heritage Investors Management in Bethesda, Maryland, ranking ninth on CNBC’s FA 100 list.
“And then, unfortunately, they can’t handle the pain,” he said, explaining how some clients want to dial down …….