Overview of Behavioral Advice - Understanding the Smart ......Financial Sources: % of Investors That Have Lost Trust the smart money philosophy think2perform.com Survey: Sullivan Insights

Overview of Behavioral Advice: Understanding the Smart Money Philosophy

presenter: doug lennick, ceo | july 10, 2013

a think2perform program

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“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


• Why this topic?

• Why now?

• What is the Smart Money Philosophy?

• What is the Health and Wealth Connection?From Misery to Wisdom

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Why This Topic and Why Now?


• 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.

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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


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…


• 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.

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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.



Investors value honesty in their advisors above all else.



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



• 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).

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Investors recognize their own role in their financial futures –despite the forces that are out of their control.


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”


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


3. In the 20 years ending in 2012, the annual performance of the Barclays Aggregate Bond Index was 5.43%.

FALSE – 6.34%



4. In the 20 years ending in 2012, the average fixed income investor was 0.98%.

TRUE – 0.98% - Investments work, investors don’t



5. Emotions have little or nothing to do with financial decision-making.

FALSE

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Source: Doug Lennick conversation with Richard Peterson, author of Inside the Investor’s Brain, 3/26/08


6. Effective leadership/influence of client behavior is primarily a function of advisors managing their own behavior effectively.

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TRUE

Source: Think2Perform


7. With the rise of stress and the corresponding fall of emotional competence – irrational decision-making goes up.

TRUE

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Source: Dick Thompson, Ph.D. The Complex Relationship of Stress and Emotional Intelligence


8. Research shows that the competency advisors need the most for the client to have superior portfolio performance is cognitive intelligence.

FALSE


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


Effective leadership/influencing of others


Effective self-management

Effective decision-making

Self-awareness

The Alignment Model


MORAL COMPASS

PrinciplesValuesBeliefs

GOALS

PurposeGoalsWants

BEHAVIOR

ThoughtsFeelingsActions

Frame 1 Frame 2 Frame 3

Ideal Self Real Self

The Experiential Triangle

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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


Behavioral Advice & The Two-Sided Coin


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


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 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: 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


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


Wisdom: Preparing for the Certainty of Uncertainty


“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


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


Recognize


• 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.

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Reflect


• 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.

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Reframe


• 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.

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Respond


• 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.

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thank you.

Doug lennick, [email protected], @DougLennick

Documents

Overview of Behavioral Advice - Understanding the Smart ......Financial Sources: % of Investors That Have Lost Trust the smart money philosophy think2perform.com Survey: Sullivan Insights