Late last year I was asked by Michael Kitces to write a guest blog on the topic of behavioral finance. There were parameters he sent me to get it approved and ultimately published. While the invitation was given, there was no assurance they would publish it. I took my time and put a lot of thought and mental energy into constructing it. It took me about three weeks to write.
Fast forward a few months and I get word that they are going to publish it, and now it came down to the editing phase. They offered some excellent suggestions and gave me the opportunity to make some updates since my original version was created before Coronavirus and my opportunity to edit was during the crisis.
I include some of the executive summary below, written by the Kitces team, and then a link to read it all on Kitces.com, since he ultimately published it.
I hope you enjoy!
JAY
EXECUTIVE SUMMARY
The study of behavioral finance has significantly enhanced our understanding of real-world financial behaviors, and (in the process) has given advisors insight into the underlying behavioral biases that cause clients to make not-always-rational decisions. Yet while examining the irrational behavior of individuals in the context of personal finance, behavioral finance focuses mainly on how individuals behave but doesn’t always do a great job explaining why they make the choices and have the biases that they do, nor in particular what financial advisors should actually do about those behaviors. Thus, while academic research on behavioral finance has imparted value to the financial planning industry, it still has a tendency to fall short when it comes to providing effective, practicable applications that advisors can bring back to their firms.
In this guest post, Jay Mooreland – Founder of The Behavioral Finance Network in Saint Paul, Minnesota – examines the challenges financial advisors face in actually implementing behavioral finance concepts effectively with their clients, and how advisors can instead use behavioral coaching not only to help clients stick to their plan but also as a way to differentiate themselves from other advisors…