Trending
Most advisors are familiar with an Investment Policy Statement, which outlines the purpose, construction, and on-going management of an investment portfolio. But that only deals with the portfolio. What about the investor? After all, isn’t the investor the bigger risk to achieving (or not) their goals?
A diversified investment portfolio has never lost an investor money. Never. It is only when investors make certain buy/sell decisions that converts natural and frequent fluctuations in asset prices to a personal and permanent loss. In other words, the investor is a bigger threat than a portfolio to achieving success.
So why don’t you use a Behavioral Policy Statement?
The Behavioral Policy Statement
The reason advisors don’t use a Behavioral Policy Statement (BPS) is because it isn’t something Wall Street has provided. Wall Street, and the vast majority of tools at advisors’ disposal, are rooted in classical economic theory. They assume the investor is rational – doesn’t make cognitive errors and isn’t influenced by emotion. The tools are important, indeed, essential in our practice. But they are incomplete.
A few years ago I developed a Behavioral Policy Statement for members of The Behavioral Finance Network to use in their business. It is a systematic approach that makes it easy to incorporate behavioral finance theory into your practice. Not only that, but it is very simple for investors to understand, easy to review at each meeting, and actually helps investors think better about their investments and decision-making process.
Create Your Own BPS
This week I found out that I was selected to present at this year’s Future Proof Festival in Huntington Beach, CA. I will talk about how advisors can create their own Behavioral Policy Statement. Each person that attends my breakout will walk away with a strong prototype of a BPS – 90% of the way there. Something they could realistically apply in their business within one week.
I attended Future Proof last year and it was the BEST financial conference I have ever attended. Not only is it outdoors on the beach, but most of the sessions were brief (20-40 min) – ensuring that those presenting gave their very best with no fluff. I loved it! It is such an honor to have the opportunity to be one of the presenters this year.
I encourage you to look into the conference and do whatever you can to attend. You won’t be sorry. You can learn more about Future Proof and register here.