Monday, June 22, 2009

Behavioral finance can deepen your client relationships

Understanding behavioral finance can improve your client relationships. That's the lesson I took away from "Behavioral Finance: So What?", a June 15 presentation by Gayle H. Buff, president of Buff Capital Management, to the Boston Security Analysts Society (BSAS). Buff has 20 years of experience working with  individual investors and is a past president of the BSAS.

Like financial advisors, clients of investment and wealth managers don't act with complete rationality. They react with their emotional right brain in addition to their rational, reflective left brain. However, Buff said, to optimize our ability to make informed decisions, we need to use both sides of our brains. Advisors who understand this, can tailor their interactions with clients to take advantage of this. 

Behavioral finance experts have identified loss aversion, uncertainty aversion, and overconfidence as a few of the key investor tendencies that reflect the influence of the right brain. During the past year's financial crisis, Buff observed many instances where fear of uncertainty trumped fear of loss. Some of her clients wanted to sell their investments, even if that potentially meant locking in losses.

Behavioral finance helped Buff respond effectively to her clients who wanted to sell. Understanding that clients' "sell" requests were intensely emotional, "I don't take it personally or as them telling me I've done something bad," she said. Instead of arguing with them, Buff listened to her clients' fears. "Talking about what makes us afraid makes us less fearful," she said.

It isn't easy for most advisors to follow Buff's strategy. "We often want to rush in with facts," she said. However, advisors need first to acknowledge their clients' feelings. Only after doing that does it make sense to give clients an alternative perspective on the issues. The advisor who takes this two-step approach will find their clients more receptive.

In fact, if advisors and clients can work through a financial crisis, they may end up with a much deeper relationship. One of the big advantages may be enhancing clients' understanding of risk. Prior to the past year's financial crisis, most clients overestimated their risk tolerance said Buff.

Buff listed five areas that advisors should explore with their clients, including clients'
1. Capacity to tolerate market volatility and economic risk
2. Characteristic defensive posture in the face of anxiety and uncertainty;
3. Vulnerabilities, passions, strengths, weaknesses, and dreams
4. Ability to process, integrate, and adapt to new information a new experience
5. Commitment to working collaboratively and synergistically as one-half of the advisor–client

This blog post only touches on a tiny portion of Buff's material, which included a bibliography on complexity theory and adaptive systems, behavioral finance and investor psychology, and the intersection of theory and practice. However, she speaks on behavioral finance to CFA societies around the world, so she may come to your area.

By the way, it has been my pleasure to get to know Gayle through volunteering with her on the BSAS' Private Wealth Management committee. I've seen her dedication to financial education.

Susan B. Weiner, CFA
Check out my website at or sign up for my free monthly e-newsletter.
Copyright 2009 by Susan B. Weiner All rights reserved

Saturday, June 20, 2009

Off-topic post: My trip to China

I recently spent almost three weeks in China. It was quite an experience.

Empty your cup of yak butter tea, if you don't want a refill. Flick three drops of beer into the air before you drink--one for the Buddha, the next for the ancestors, and the third for guests. Take off your hat and sunglasses in Buddhist places of worship. These are bits of etiquette I learned in Lhasa, Tibet.

Yak butter tea was a bit salty for my taste, so I sucked it down to avoid a refill. Home-brewed barley beer was more to my liking. Barley is a staple in Tibet. Locals say that one bowl of barley is worth two of rice. A snack that looked similar to popcorn, served in the home of a middle-class Tibetan family, turned out to be popped barley. By the way, despite the middle-class designation, the house was modest. The grandmother would sleep in the kitchen during the winter for warmth.

The most fascinating aspect of Lhasa was seeing Tibetan Buddhism in action. I was there during a holiday, so more people than usual were circling the pilgrimage sites and prostrating themselves, lying flat on the ground. Some of the people prostrating had pieces of plastic strapped to their hands to smooth their way as they raised and lowered themselves. I also saw monks debating. The closest I came to participating in religious activity myself was giving a heavy metal prayer wheel a spin as I walked by.

The smell of incense and melting yak butter will always remind me of the Potala Palace and other pilgrimage sites in Lhasa. At the palace, our group snaked through dark, narrow corridors viewing Buddhist paintings and statues, thrones, boxes filled with books inked in gold or silver, and especially magnificent tombs studded with turquoise, coral, pearls, and other precious gems. The ancient Buddhist observances contrasted with the modernity of armed men stationed on downtown streets. The tour guide warned our group not to photograph the army men or demonstrations.

By the way, if you ever go to Tibet, be prepared for altitude sickness. Also, watch out for the steep stairs in the Potala Palace. One member of my group fell down the stairs and broke his wrist.

In addition to Lhasa, highlights of my trip included a Yangtse River cruise, where I saw misty mountain scenery reminiscent of the Chinese paintings I studied in my college art history class. Of course, the views look different since the Three Gorges dam raised the water level dramatically. The government plans to build 12 more dams upstream.

I also enjoyed Shanghai, where the number and diversity of skyscrapers--and the incredibly smooth ride to the 94th floor of the World Financial Center--contrasted with the serene beauty of the Ming-era Yu Yuan Garden.

As a long-time, though lapsed, student of the Japanese language, I was interested to see how the Chinese had simplified old-fashioned characters differently than the Japanese. For example, the den in denki, which means "electric" in Japanese looks different in both languages. I had fun trying to figure out the Chinese subtitles on English-language TV shows. But my ability to puzzle out some words on storefronts and menus didn't help me with spoken Chinese. 

Economic notes
China's tourist economy is hurting. This year my guide is getting five tours from Viking River Cruises. Two years ago he got 10.  Also, Viking is only running one Yangtse River boat instead of two Of course, this may reflect U.S. conditions more than Chinese. However, I also heard that many of the cranes I saw had been idled. On the stock market front, my tour guide said that most Chinese believe their market will rebound because of China's economic strength. 

The state-run China Daily newspaper skirted discussion of what many call the Tiananmen Square massacre in "China slams Clinton's June 4 comments"(June 5). It led with "China Thursday expressed deep dissatisfaction and resolute opposition to US Secretary of State Hillary Clinton's remarks on the 20th anniversary of the events of June 4." But the paper didn't quote Clinton's remarks. Presumably they were too subversive.

On a related note, I wasn't able to access my blog--or any URL containing or those addresses were blocked. I met other bloggers who had similar experiences.

Susan B. Weiner, CFA
Check out my website at or sign up for my free monthly e-newsletter.
Copyright 2009 by Susan B. Weiner All rights reserved

Friday, June 19, 2009

"Helping Advisors Grow"

Now more than ever, advisors want to grow their businesses while keeping a lid on expenses. For many, this requires thinking more strategically about how they operate. George Tamer, Director, Institutional Sales, at TD AMERITRADE Institutional, oversees a team that works to help registered investment advisors create operational efficiencies by assisting them on workflow processes, technology usage, and best practices.

Continue reading this Q&A with George Tamer on "Helping Advisors Grow. It appeared as sponsored content in Advisor Perspectives.

Susan B. Weiner, CFA
Check out my website at or sign up for my free monthly e-newsletter.
Copyright 2009 by Susan B. Weiner All rights reserved

Is the efficient market hypothesis dead?

The efficient market hypothesis is taking a lot of heat. It's getting slammed in opinion pieces such as George Soros' "The three steps to financial reform" and articles such as Joe Nocera's "Poking Holes in a Theory on Markets."

What do YOU think? Did the efficient market hypothesis contribute to the current financial crisis? Answer the poll in this blog's right-hand column.

Susan B. Weiner, CFA
Check out my website at or sign up for my free monthly e-newsletter.
Copyright 2009 by Susan B. Weiner All rights reserved

Thursday, June 18, 2009

Guest post: Dale Carnegie and Your Clients

This is a guest post from AdvisorBlogger's Lawain McNeil, which originally appeared on March 11. It's an excellent reminder that it's important to treat clients as individuals.

In 2009, I made a resolution to re-visit the book How to Win Friends and Influence People by Dale Carnegie. Of course, everyone has heard of this book (it has sold over 15 million copies). Its influence has been far reaching and helpful for many. Thanks Dale Carnegie.

Why do I mention him today? I think some of the principles of How to Win Friends and Influence People can be helpful in dealing with clients in the current state of the market. Even though the market was up the last two days, clients are still concerned about their investments. This will be very present to them when they open their quarter-end statements and see negative numbers and lower account balances. Yes, you will have clients that will want to argue with you regarding their investments. You will have clients that will want to change their allocation to a different allocation or strategy due to the market (even though they signed an investment policy statement saying they were a long-term investor). You will have clients that are afraid and just need reassurance.

So, as you prepare to talk, write, visit and meet with clients, revisit the words of a timeless classic and see if the Carnegie Principles can help you communicate more effectively with your clients.


Fundamental Techniques in Handling People

   1. Don't criticize, condemn or complain.
   2. Give honest and sincere appreciation.
   3. Arouse in the other person an eager want.

Six ways to make people like you

   1. Become genuinely interested in other people.
   2. Smile.
   3. Remember that a person's name is to that person the sweetest and most important sound in any language.
   4. Be a good listener. Encourage others to talk about themselves.
   5. Talk in terms of the other person's interests.
   6. Make the other person feel important - and do it sincerely.

Win people to your way of thinking

   1. The only way to get the best of an argument is to avoid it.
   2. Show respect for the other person's opinions. Never say, "You're wrong."
   3. If you are wrong, admit it quickly and emphatically.
   4. Begin in a friendly way.
   5. Get the other person saying "yes, yes" immediately.
   6. Let the other person do a great deal of the talking.
   7. Let the other person feel that the idea is his or hers.
   8. Try honestly to see things from the other person's point of view.
   9. Be sympathetic with the other person's ideas and desires.
  10. Appeal to the nobler motives.
  11. Dramatize your ideas.
  12. Throw down a challenge.

Be a Leader: How to Change People Without Giving Offense or Arousing Resentment

A leader's job often includes changing your people's attitudes and behavior. Some suggestions to accomplish this:

   1. Begin with praise and honest appreciation.
   2. Call attention to people's mistakes indirectly.
   3. Talk about your own mistakes before criticizing the other person.
   4. Ask questions instead of giving direct orders.
   5. Let the other person save face.
   6. Praise the slightest improvement and praise every improvement. Be "hearty in your approbation and lavish in your praise."
   7. Give the other person a fine reputation to live up to.
   8. Use encouragement. Make the fault seem easy to correct.
   9. Make the other person happy about doing the thing you suggest.

Here's how AdvisorBlogger describes its mission: "AdvisorBlogger is a website dedicated to providing valuable and timely resources for financial advisors through the use of blogging, podcasts, video and other rich media formats. Our goal is to become a leading online resource for the independent advisor community." 

Susan B. Weiner, CFA
Check out my website at or sign up for my free monthly e-newsletter.
Copyright 2009 by Susan B. Weiner All rights reserved

Wednesday, June 17, 2009

A new question you should ask reporters

Add a new question to your checklist when you're interviewed by reporters--or risk an unpleasant surprise in the world of Web 2.0.

Ask "Is this just for your personal use?" when a reporter asks to record your telephone interview. As publications add podcasts to their websites, this question increasingly makes sense. It'll prevent you from being surprised by your voice on a podcast. A good reporter won't spring a podcast on you by surprise. But it can't hurt to confirm the purpose of a recording.

So far I've only recorded interviews to help when I can't take notes fast enough. Sometimes I'll replay parts of the recording to check facts or quotes. However, I wouldn't be surprised if some day I record a podcast for one of my trade publication or corporate clients. I've already been interviewed for a podcast by Russ Thornton and Lawain McNeil of AdvisorBlogger. It felt funny being the person who answered questions, but I had fun.

Susan B. Weiner, CFA
Check out my website at or sign up for my free monthly e-newsletter.
Copyright 2009 by Susan B. Weiner All rights reserved

Friday, June 12, 2009

If you're thinking about starting to blog...

... you can learn about the case for blogging and how to integrate it into your schedule. Just watch this YouTube interview with Denise Wakeman of The BlogSquad. The interview was conducted by Michael Stelzner of Writing White Papers.

One of Wakeman's points applies to all of your marketing communications. Think about the problems you solve for your clients. Write about those and you'll command their attention. It doesn't matter whether you're writing a blog post, quarterly client letter, newsletter article, or website.

Susan B. Weiner, CFA
Check out my website at or sign up for my free monthly e-newsletter.
Copyright 2009 by Susan B. Weiner All rights reserved

Tuesday, June 2, 2009

Financial writer's clinic: Great title, lousy intro

"When Will Housing Recover?" This title reeled me in. I flipped directly to the article, bypassing two others. But what I found disappointed me. I'll use this article's mistakes to suggest rules you can follow in your article introductions.

The writing problem: Boring introduction
Then article's first paragraph stopped me cold. It held a long-winded description of a home price index's composition. It's information that I might exile to a footnote if I wrote a white paper on this topic.

Here's the first sentence of the article: "The S&P/Case–Shiller Home Price indices measure the growth in value of residential real estate in various regions of the United States."  The first paragraph devotes 247 words to the details of the markets tracked by these 23 indices.

Three rules for an interesting introduction
1. Answer the key question. That's "What's in it for your readers, if they slog through your article?"The authors nailed this question perfectly with their title. But they forgot about it when they wrote their introduction.
2. Keep it short. Direct marketers have discovered that readers start to lose interest once a paragraph runs longer than 42 words. Sure, investment professionals have more patience than folks opening junk mail. Still, the authors' 247 words--almost six paragraphs of words according to direct marketers' standards--is way too long.
3. Don't save the good stuff for your conclusion. If you're like me, you learned in school that you should build your argument logically to a conclusion. Throw that habit away, if you want people to read what you write. At a minimum, hint at your conclusion in the introduction to your article.

My rewrite of the article's introduction
Everybody wants to know when housing will recover. But you can't make a meaningful estimate until you understand the data. It seems to us that the severity of the decline has been overstated because of problems with the S&P/Case–Shiller Home Price indices. Once we understand the data better, we can make a case for housing getting on the road to recovery by the second quarter of 2010.

The indices are dominated by states, such as California and Nevada, that have experienced a housing boom followed by a bust. In fact, price increases and declines vary greatly by state. The price of housing in roughly two-thirds of our 50 states have risen--or fallen by no more than 5%--during the two years since the fourth quarter of 2006.

My rewrite isn't perfect. Some of the sentences are awfully long. But I feel confident that it's more engaging than the original. What do you think?

Susan B. Weiner, CFA
Check out my website at or sign up for my free monthly e-newsletter.
Copyright 2009 by Susan B. Weiner All rights reserved