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Know Your Role: Investment Counselor Vs. Behavior Coach Part 1

Know Your Role: Investment Counselor Vs. Behavior Coach Part 1

| May 05, 2021

OK folks, buckle up because we are going to talk about a topic that no one wants to say out loud. “What the heck do I pay you for?” OK, I said it; it’s out in the open now, so let’s go.  

But wait...I should say this first...I am not trying to justify my role or sell you on anything; instead, this month, we are going to talk about the hidden role of a financial advisor...behavioral coach. Sure, the majority of an advisor’s role is to create a plan to help you live well financially in every stage of your life, but there is more to your relationship with your advisor than that. We are a teacher, guide, coach, and counselor as well. 

In fact, I would even go so far as to say our real value to our clients is in helping you manage your behavior or your reaction to market events. Basically, helping you through all the emotions that come with financial matters and market fluctuation. Our mission is to keep you focused on your long-term dollar-specific date-specific plan no matter what happens in your life in the short term. This is how we are really graded at the end of the day. If your advisor does an excellent job in this crucial goal, they serve their clients very well, especially when the stock market is going through periods of volatility.

I want to share the three guiding factors I use to make sure I am the best behavioral coach I can be to each of my clients.

  1. Show my clients that costly mistakes can be made when financial decisions are made with emotional biases, cognitive errors, and lack of discipline.
  2. Continually educate myself on behavioral finance and deeply understand how emotional behaviors can get in the way of financial success so that I can intervene as a behavioral coach to correct the course.
  3. Continually ensure that I am an effective communicator and listen deeply to clients' unique situations and goals so that the plans we create and the advice I provide are tailored to your life and your emotional triggers.


That being said, before I end this post, I want to leave you with a high-level view of the term I have used a lot in this writing: Behavioral Finance. Understanding this is a key to your education as a client. Like I always say, I firmly believe that an educated investor is a healthier and more confident investor. 

What is Behavioral Finance?

Behavioral finance is actually a field of study, but for most non-academic purposes, it can almost be used interchangeably with emotional investing. It goes even beyond things like the idea that you should get out of the market when things start dropping. Think about that broadly; you aren’t the only one that has had that thought. That simple thought is like a car tapping its brakes on the highway. The car behind it sees the red lights and taps on its brakes, and so on and so on. Before you know it, you’re sitting in a traffic jam, and the first guy that tapped his brakes is long down the road eating dinner with his family, blissfully unaware of the damage he’s done. 

Behavioral investing is a lot like that. Emotions affect the broader markets. If you are thinking of selling, chances are many other folks are too. This is when we start to see people bailing out of their investments, markets diving, and panic in the media. Of course, this is a worst-case scenario but it, happens; we’ve all seen it several times in our lives. The bottom line is that irrational behavior is commonplace. The question I have for you is - do you want to take the chance of losing money by running in and out of the market every time there is some turbulence, political nonsense, or adverse news story? Probably not, right? 

That’s where your advisor, in the role of behavioral coach, comes in and educates and keeps you on track and level-headed. Now, I don’t want you to feel bad about yourself if you get scared when things happen. Of course not; that is entirely normal. What I do want this month’s blog series to do for you is help educate you on the possibility that subconscious emotions may be affecting your behavior towards saving and investing and toward financial planning as a whole. By doing this, I hope that you will be able to be open and honest about your fears with me or your advisor and create a more profound and more positive relationship. After all, your advisor, myself included, is only as good as the information we have from you, and that includes your personal and emotional feelings about investing and money. 

You can probably tell that I find this topic fascinating, I do, and I am really excited to share the information with you. Behavioral finance is an eye-opening and fascinating topic. 

Stay tuned for Part 2!

P.S. If you enjoyed what you've read here and found it beneficial, we encourage you to share it with your friends and family. I firmly believe that an educated investor is a healthier and more confident investor. 

Until next time...

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes.

Investing involves risks including possible loss of principal. No strategy assures success or protects against loss. All performance referenced is historical and is no guarantee of future results. Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market. Bonds are subject to market and interest rate risk if sold prior to maturity.

Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

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Municipal bonds are federally tax-free but other state and local taxes may apply. If sold prior to maturity, capital gains tax could apply.

Investing in mutual funds involves risk, including possible loss of principal. Fund value will fluctuate with market conditions and it may not achieve its investment objective.

Options are not suitable for all investors and certain option strategies may expose investors to significant potential losses such as losing entire amount paid for the option. The fast price swings in currencies will result in significant volatility in an investor’s holdings. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.

Source: Portfolio Construction An Advisor's Role as Behavioral Coach