Commonwealth Independent Advisor

Managing Your Clients’ Risk Perception

Posted by Kol Birke, CFP

July 16, 2019 at 10:00 AM

While we often focus on “risk tolerance,” when the markets head up or down precipitously, managing your clients’ risk perception is actually the key. Of course, to do so, we must first understand the difference between risk tolerance and risk perception. In a nutshell, the reason why people’s risk tolerance can change drastically during times of market volatility has to do with this notion called risk perception. Research from the CFA Institute shows that risk tolerance is a fairly stable “personality trait”—which stays the same unless someone has a life-changing experience. Risk perception, on the other hand, is an emotional, temporary judgment of the severity of a risk during a certain time frame.

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Topics: Behavioral Finance

Why We Spend Money We Should Be Saving—and How to Resist the Impulse

Posted by Bette Skandalis

January 15, 2019 at 10:00 AM

With the holidays behind us, it’s a good time to explore why we spend money. Heading into year-end, the stock markets were plummeting, wiping out most, if not all, 2018 gains from our equity-based savings accounts. Yet when I walked into my groovy neighborhood gift shop to buy a holiday hostess present, people were lined up for their Curio Spice Aegean Sea salt and Somerville greeting cards for $4.50 a pop. What gives?

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Topics: Behavioral Finance

Avoiding Pitfalls in Financial Decision Making

Posted by Giovanna Zaffina

May 17, 2017 at 1:30 PM

Have you ever stopped to think about why or how you made a decision? Was it your logic, intuition, emotion, pressure, or routine? Or were you simply following direction from someone else?

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Topics: Behavioral Finance

How to Help Clients Avoid Self-Destructive Financial Behavior

Posted by Kol Birke, CFP

June 15, 2016 at 1:30 PM

I’ve heard advisors ask, “Why does my client want to go to cash when his portfolio has lost only nominal money?” or “Why is my client blaming me for something she pushed for months ago?” Rather than trying to explain why their instincts are wrong, it can be more effective to instead just affirm their feelings and then redirect their energy.

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Topics: Behavioral Finance

Nature Vs. Nurture: Can You Change Your Clients’ Financial Behavior?

Posted by Kol Birke, CFP

June 14, 2016 at 10:00 AM

Research suggests that our DNA affects our spending and savings patterns. Does this mean it’s futile to try to change your clients’ financial behavior? Maybe not. While DNA can affect your clients’ decision making, it isn't the sole factor.

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Topics: Behavioral Finance

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