TITLE

Incorporating Behavioral Finance into Your Practice

AUTHOR(S)
Pompian, Michael M.; Longo, John M.
PUB. DATE
March 2005
SOURCE
Journal of Financial Planning;Mar2005, Vol. 18 Issue 3, p58
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
Irrational investor behavior is commonly observed by wealth management practitioners when creating and administering investment solutions for their private clients. Many advisors would like to address behavioral issues, but lack diagnostic tools and application guidelines to employ behavioral finance research with clients. Many clients would be well served by adjusting their asset allocations to account for biased behavior. By doing so, they would stand a better chance of adhering to their investment programs and enjoy better long-term investment results. In applying behavioral finance research to client situations, practitioners must decide whether to attempt to change their clients' biased behavior or adapt to it. Furthermore, quantitative guidelines need to be available when modifying asset allocations to account for biased behavior. Practitioners should adapt to biases at high wealth levels and attempt to modify behavior at lower wealth levels. They should adapt to emotional biases and moderate cognitive biases. These actions will lead to a client's best practical allocation. Three case studies illustrate how these guidelines are applied. A quantitative model is also unveiled that calculates acceptable discretionary distances from the mean-variance output for determining the best practical allocation. The article offers practitioners a framework to better understand how behavioral finance can be applied to their individual clients. INSET: Executive Summary.
ACCESSION #
16401771

 

Related Articles

  • Give Yourself a Break. Garver, Rob // Bank Investment Consultant;Aug2008, Vol. 16 Issue 8, p35 

    The article offers tips for investment advisors on how to plan vacations. It cites that workers should allocate time to recharge themselves to increase productivity and efficiency. It then emphasizes that a strong system is effective to give advisors a break by training staff and clients on the...

  • Wise Investors Establish Risk, Reward Performance Expectations. Nolan, David // State Journal (WV);3/9/2012, Vol. 28 Issue 10, p29 

    The author discusses the need for investors to develop risk and reward performance expectations with managers before creating investment programs to avoid future problems.

  • What Women Want (from Advisers). Ackerman, Ruthie // American Banker;8/4/2010, Vol. 175 Issue 119, p7 

    The article examines research on women investors' attitudes towards their investment advisers and wealth management services conducted by Boston Consulting Group which found considerable dissatisfaction with the service provided by wealth managers.

  • Concentration nightmare. Ashton, Marc // Finweek;3/10/2011, p6 

    The article focuses on the risks for investors investing in construction industry stocks and the factors they should consider while investing in a South African unit trust portfolio. Analyst Franco Busetti has written in his book "The Effective Investor," that 20 stocks in a portfolio removes...

  • Good gamma: managing investor expectations. SEDORIC, TOM // New Hampshire Business Review;11/28/2014, Vol. 36 Issue 24, p18 

    The article offers tips on the management of expectations among investors through consideration of factors such as through saving, awareness of tax efficiency and asset allocation, and value investment counseling.

  • Advisors: Embrace the Winners ... and Losers. Israelsen, Craig L. // Financial-planning.com;10/1/2015, p1 

    Help clients understand that temporary losers in a volatile market are just that: temporary.

  • Ongoing Planning Relationships. Napolitano, John // Practical Accountant;Jul2006 Supplement, Vol. 39, p20 

    The article focuses on the significance of financial planning to the finances of clients who opted for guidance from a financial planner or a certified public accountant (CPA) in the U.S. By providing definitions and practical guidance, clients will have a proper management of their finances. A...

  • Local Heroes. Hawser, Anita // Global Finance;Apr2009, Vol. 23 Issue 4, p44 

    The article focuses on the financial support of banks in Asia. The banks play a vital role in assuring the U.S. clients of a reliable banking system. The economic crisis has been considered as an opportunity for banks to strengthen their relationship with clients. This is done by proving the...

  • Building client relationships--from the ground up.  // Money Management;11/27/2003, Vol. 17 Issue 44, p36 

    Reports on the client relationship established by financial planners in Australia. List of high profile jobs compared to financial planning; Problem experienced with a planner.

Share

Read the Article

Courtesy of VIRGINIA BEACH PUBLIC LIBRARY AND SYSTEM

Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics