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How to Provide Better Results for Your Financial Advising Clients with Financial Psychology

While every client comes to you for financial guidance, some clients need more hand holding than others. We all know those clients who call every time there’s a dip in the market or who show up in your inbox every week. But what if there was a way you could identify these clients faster and give them the guidance they need, all while respecting your own boundaries and free time?

By understanding your clients’ financial personality types, you can give them the guidance they need without taking too much time out of your day. Knowing your client’s financial personality type offers a variety of benefits including:

Identifying their pain points faster
Understanding their financial motivations and approach to money
Determining where they fall on a scale for 13 personality types
Giving advice tailored to their strengths, weaknesses, and motivations

Each personality type will approach money differently, but financial advising clients won’t always tell you their money mindset, strengths, and weaknesses. The Moneymax quiz, however, allows you to discover someone’s personality type in less than 15 minutes. From there, you can give the right type of advice, especially to those who need more guidance.

Moneymax has nine personality types and of those nine, some need more guidance than others. By knowing what type you are dealing with, you can give the right guidance to each of your clients.

Entrepreneurs

Moneymax entrepreneurs tend to think outside the box, consider career achievements a priority and will take risks to achieve their goals. While some follow the typical image of an entrepreneur and run a large company with many employees or own a small business, others are “intraprenuers”, salaried workers who carve out an entrepreneurial niche within corporations or businesses. Others work a full time job and have a side hustle outside the office.

Entrepreneurs won’t need as much guidance as other types. However, because entrepreneurs and business owners have different financial concerns than regular employees, these clients might need extra guidance on how to manage their finances as a business owner.

Hunters

As one of the most educated and ambitious Moneymax personality types, hunters should be set up for financial and professional success. However, this type does have the tendency to doubt themselves and emotionally spend. Hunters have the ability to play the money game, but they need to learn how and develop the confidence to play on their own.

Hunters could need more guidance because of their lack of confidence. This type might ask more questions and might not be able to stick to a savings plan because they are emotional spenders. To give hunters additional guidance, consider setting up a stricter savings plan that plays into their ambitious spirit (such as a tracker or smaller goals to hit along the way to a bigger savings goal). You might also help build up their confidence by telling them when they did something right with their finances and encouraging them to take a more active role in managing their money.

Optimists

The Moneymax Optimist tends to have a positive money mindset. They are proud of the way they handle their finances and have high expectations for future financial success. The optimist can sometimes overspend on things that bring short term pleasure. Despite their spending habits, they are overall confident and proficient in managing their wealth.

This type probably won’t need as much guidance as other types. But similar to the hunters, they may need some guidance on how to spend their money. If you scaffold their financial plan right and allot some wiggle room for their spending tendencies, this type should be easy to manage and need little guidance.

Perfectionists

Moneymax Perfectionists tend to be overly critical and are afraid to make mistakes when it comes to money management. They often avoid decisions and put off work until they are sure they can do it just right. This type also tends to be frustrated with their financial situation as it’s never perfect.

As a procrastinator, the perfectionist might need more hand holding than other types. While they’re not as likely as the hunter or safety player to ask for your advice, you could find yourself following up with them a few times before they take action. When dealing with perfectionists, make sure to have a plan in place to curb their procrastination and take any needed actions as soon as possible.

High Rollers

Of the nine Moneymax personality types, the high roller is the biggest risk taker. They desire power, influence, and wealth and aren’t afraid to take big risks. They enjoy the thrill of risky money decisions and in spending their money instead of saving it. While their risks can have high reward, their emotional decision-making can sometimes get in the way of their financial success.

As the biggest risk taker, the high roller can be a tricky type to manage. They can be great if you’re looking for clients willing to make riskier financial decisions with a potentially bigger payoff, but these clients aren’t as fun to deal with when those decisions don’t pay off. If any of your clients are high rollers, keep in mind that you may need to make extra time for when their risk taking gets in the way of their financial success.

Money Masters

Moneymax Money Masters tend to be just that–masters of their money and lives. While they are third in income, they are first in assets and are strategic in setting up a good financial future. This group is highly involved in their money management and proud of their achievements.

Money Masters usually don’t need a lot of guidance. When they are first starting to build their assets, they could ask more questions than other types, but overall they tend to be more involved in their money management and will need less hand-holding along the way.

Achievers

The achievers are frugal with their money, believe in the value of hard work, and are interested in protecting what they earn. They tend to mistrust others and want to play an active role in their money management. Achievers are tied with Hunters for being the most educated personality type and are also goal oriented. Unlike hunters, they tend to make more analytical decisions.

Due to their mistrust of others, you either won’t see as many achievers in your practice or these types will ask more questions and be more skeptical than other types. When working with an achiever, expect more questions than usual about your financial practices.

Producer

The Moneymax Producers are one of the hardest working types and tend to be altruistic. However, their assets and income do not reflect their hard work and they’re often frustrated with their financial reality. By changing their negative view of money, they could change their financial future.

The producers usually need a lot of guidance due to their negative view of money and their financial frustrations. This type could email or call you frequently for extra help with their finances. However, if you guide the producer to start building up assets which compliment their hard work, you might be able to better manage this type.

Safety Players

Safety players tend to see financial success as a matter of luck or being at the right place, at the right time. They are less likely than other Moneymax types to believe their individual actions control their financial future. Because of this, they tend to make safe financial decisions with minimal risks. Safety players are also more passive in their money management than other types.

Because of their perceived lack of control over their finances, safety players may need more guidance than other personality types. This type will be more passive with their money management and expect you to do the bulk of the work managing their finances. To help guide safety players, remind them of how much they can control their future and work with them to create a safe, less risky financial plan.

While some types may take more time and attention than others, you can better manage all nine personality types when you understand the strengths, weaknesses, and motivations of each. When you walk into a meeting with a client not knowing their personality type, you are often guessing about their approach to money. When you enter the meeting armed with their money personality type, you can more effectively attend to their questions and needs, saving you time and providing customized financial advising to your clients.

How to Separate Money and Emotions For Better Wealth Management

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To know and understand the motivating forces behind investing, to know and understand why one investor becomes tense about losses, why one becomes greedy about profits, and why one either overreacts or fails to react is, perhaps, more than half the investment battle. Money and emotions aren’t always an ideal pairing. If your emotions are managing your wealth, you may not be setting yourself up for success.

There is a high price to pay for the kind of innocence many investors bring to their investments and the way they interact with their investment advisors. Unfortunately, in many cases, to help maximize your financial returns, you must first help yourself master your emotions.

Often, bull markets are like blinders. Investors begin to believe in the fantasy that their stocks will always take good care of them and never disappoint them. But, when reality hits and the bull market turns bear, investors can be faced with challenging decisions and their gut emotions may take over.

There are certain important relationships which we must understand before we may be able to achieve a consistent degree of success in the world of investing and in the marketplace.

The first and foremost of these is that the majority of losses in the marketplace result not from poor trading decisions but rather from emotional and attitudinal causes. Investing by its very nature is an emotional business.

Few investors have the self-knowledge, emotional stamina or self-control to make rational, intelligent and profitable decisions, particularly in times of stress. So often, investors react wildly to bad news, frequently selling shares of perfectly good stocks–reacting with their emotional money minds rather than their rational ones.

Why is it that some investors may tend to make rational decisions, stick with their choices and strategies while others seem to act out their emotions and make investment decisions that may not lead to profit?

The field of behavioral finance has given insight into some mental miscues investors make that might sabotage and crimp their returns:

Fear of Losing Money

Psychologically, people give greater weight to a past loss than they do to a future gain. In fact, some individuals find losing money so distasteful that they talk themselves out of investing altogether. Some investors don’t make reasonable trade-offs because the drive to avoid loss sabotages any future gains or opportunities.

But when you make decisions out of fear instead of rationality, your decisions are seldom ever good. A 2019 study on entrepreneurship found entrepreneurs who made fear based decisions instead of rational ones were less successful financially.

Determine ahead of time exactly how much you can “emotionally” afford to lose as well as “financially”. They are often very different.

Worrying About the Wrong Risks

Investors are held captive by events that could be conceived as unpredictable or frightening events. People are traumatized by dramatic events. They can’t tolerate the anxiety that accompanies them.

This can be seen in a modern day context where, for the past 3 years or so, even successful business leaders have been predicting an economic collapse worse than the great depression. While there have been adverse negative effects due to COVID-19, it has not been on the scale of more dramatic predictions.

Investors often become blind and deaf to others’ advice in these times and tune out advice from others, including their financial professionals. They exaggerate current crises.

What’s worse is that they forget the wisdom of lessons from the past. They overlook the fact that people who stayed fully invested during previous crashes recouped their losses.

Help yourself base your decisions on what you can control, not on those factors you can’t control. Review the rationale for your current strategy and ask yourself and your financial professional if it still makes sense. If it does, review why the strategy still makes sense from time to time so you can help regulate any impulsive and emotional reactions that may bring you off course.

Educate Yourself

Knowing thyself isn’t just for characters in Shakespeare’s plays. It’s also a great way to better manage your finances. Since emotions play such a big role in financial decisions, it’s important to educate yourself on psychology as well as investing in financial education.

If you are a financial advisor, you most likely have strong financial literacy and have studied personal finance for quite some time. However, you might not have studied the psychology behind it.

Oftentimes when we look at just the finance side of wealth management, we can get confused by our clients actions or ideas. However, if we studied the psychology of finance, we would better understand our clients.

One of the best ways to educate yourself on financial psychology is with the Moneymax assessment. This assessment not only allows you to know your clients’ and potential clients’ personality types, it also reveals where they fall on a scale for 13 financial characteristics.

If you understand the psychology of your clients as well as the principles of personal finance, you are better able to manage wealth.

Conclusion

As you evaluate your investment strategies and individual situations, whether with your financial professional or on your own, consider these points:

Investors are more prone to make or lose money as a function of their emotions and attitudes than on the basis of their stock selection or trading system.

The best system can be rendered a losing proposition by inappropriate implementation due to emotional and behavioral limitations.

Appropriate or successful investor behavior can be learned to a large extent. Education is essential to helping investors stay in control and continue to grow, particularly in learning self-regulation and self-control.

Acknowledging and understanding your emotions is an important step in staying on track with your long-term financial plans when challenging economies become the everyday reality.

Likewise, learning to control your emotions even when the market turns upwards is equally important.

Finally, remember, if you find yourself questioning your decisions, talk to your financial professional, they are there to help you when you have to make the tough decisions.

Getting Clients as a Financial Advisor By Setting Yourself Apart

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If you’re trying to distinguish yourself as a financial advisor, you need to set yourself apart from the rest. Every financial advisor has access to similar asset allocation tools, calculators, and risk assessments, but even with the same tools, some financial advisors get more clients than others because they’ve learned how to distinguish themselves from the competition.

One of the best ways to distinguish yourself from your competitors is by offering a more comprehensive, holistic service that achieves the personal financial goals of your clients and attracts new clients because they feel like you really get them.

While it can be tricky to offer more holistic financial advising services, it doesn’t have to be. One financial advising tool can offer you the perspective you need to stand apart from your competitors in fifteen minutes or less!

Offering a Holistic Perspective

Financial advisors often focus only on the money and not on the money manager. While it might make sense to us to offer objective advice, money can be a very emotional topic for many people.

It’s not enough to only understand how the financial side of advising works, you should try to understand what influences your clients’ money decisions and what they value financially. Do they want to invest more in travel or in starting a family? Are they optimistic or pessimistic about their money situation? Knowing details like these gives you a more holistic view of what sort of financial advice they need. You need to know your clients’ financial psychology.

When you hear this term you might say, “Psychology? I’m not interested in becoming a therapist!” And that’s not exactly what it is. Financial psychology simply lets you know more about why your clients and prospective clients make certain financial decisions. It takes the guesswork out for you and makes your clients and prospects feel understood.

However, learning about your clients’ financial psychology can be time intensive and some of it can be difficult to learn just from asking questions. While there are some tools out there that help you understand parts of your clients’ financial psychology, such as risk assessment tools, you need a more holistic approach to understanding your clients.

What is Moneymax?

But what is this secret tool that can set you apart? Moneymax!

Moneymax helps you stand out because it’s unlike any other financial advising tool on the market and it adds empathy and personality to your advising.

Studies show empathy drives better client relationships and better portfolio performance. This tool not only lets you learn more about your clients, it also shows your clients that you, as their financial advisor, really understand them. Maybe better than they understood themselves!

Moneymax puts you in a position of more trust and strengthens your ability to lead a client more effectively to their financial goals. The Moneymax tool allows you to:

Truly “get” your clients
Increase your prospective client conversion rate
Develop better relationships with your clients
Have less sales-y interactions and more meaningful ones

No matter what type someone gets, the Moneymax quiz makes your clients feel like you truly “get” them and transforms sales-y calls into more authentic conversations. If you’re ready to take your financial advising practice to the next level, it’s time to invest in Moneymax!

How the Moneymax Tool Was Created

This Moneymax quiz was formulated as a part of a research study in the 1990s. It’s been retested two times since then and had the same results, making it a timeless quiz you can use for years to come. It measures where your clients fall on a scale of 1-100 for 13 characteristics. Based on their results for those 13 characteristics, they will be assigned one of nine personality types.

Moneymax is a personality assessment based on research by Dr. Kathleen Gurney. It gives you insight into your client’s money personality and money management preferences.

The assessment takes clients’ only minutes to complete and provides a meaningful report about their money personality. With Moneymax, you can provide your clients:

More appropriate asset allocation
Greater satisfaction with the process
More confidence and peace of mind
More efficient communication

Whether you use Moneymax or not, it’s important to approach your clients with a more holistic view of their financial psychology. Understanding the full picture will set you apart from competitors and will lead to a long-term, mutually beneficial relationship.

That being said, Moneymax is the easiest and most effective way to understand your clients’ financial psychology and how to guide them towards the best financial decisions. Don’t believe us? Subscribe to our newsletter for an exclusive deal to try Moneymax’s profiling tool at a discounted price.

How to Get Over the Fear of Investing in a Nervous Market

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If you listen to the news, you’re probably aware that many people are predicting the stock market might take a dip soon. Warren Buffett, for example, has been warning of a stock market crash since 2018. But that doesn’t mean you shouldn’t invest. Eliminate the fear of investing in a nervous market with these tips.

Often bull markets, like the one we have now, are like blinders. Investors begin to believe in the fantasy that the market and our equity investments will always take good care of us and never disappoint. Yet time and time again, bull markets collapse with the most extreme and famous example being the collapse of the bull market in 1929.

Since the recession of 2008, the market has reinforced such fantasies. It has been a bull market for the past ten years with few exceptions, even during the pandemic. But that doesn’t mean the unprecedented stock market growth will last forever.

What’s an investor to do to remain calm, avoid knee-jerk reactions, and prevent emotions from potentially sabotaging all the gains realized in good times by prematurely pulling out of the market when it may not make sense?

Manage Your Emotions

There are certain important relationships which we must understand before we can achieve a consistent degree of success in the world of investing and in the marketplace. The first and foremost of these is that most losses in the marketplace result not from poor trading decisions but rather from emotional and attitudinal causes.

Investing by its very nature is an emotional business. Few investors have the self-knowledge, emotional stamina or self-control to make rational, intelligent and profitable decisions, particularly in times of anxiety and stress.

We can become better and smarter investors by looking at history and developing a sense of perspective. Economic conditions have always fluctuated at previous times of national and global crises, but the underlying strength of the American financial system has always shone through in the long run. Any hardships caused by recent events will not last forever.

Managing anxiety well during volatile times is a competency of successful investors. We all must be reminded from time to time that not making dramatic financial changes during these nervous market times can be a sign of patience and prudence, not cowardice.

Helping your clients get a current sense of control and clarity is not a bad idea. Helping them step back and see what they can realistically, financially and emotionally afford and then make decisions based on thoughtful reflection vs. impulse. In the long-term they will remember your prudent advice and help during such volatile times.

Don’t Believe Everything You See Online

Younger clients in particular are inundated with financial advice on TikTok, Youtube, and other social media outlets. This influx of information has led to questionable financial advice.

Many financial influencers online create their wealth through scamming their followers. They’ll predict to their followers that a certain stock (which they have purchased a lot of) will do good. Their followers will invest in that stock and then the influencer will pull out their own investment, making a generous return at the expense of their followers.

It’s best to steer financial advising clients away from online financial gurus who try to encourage this sort of trading, often with emotional and convincing content.

But it’s not just influencers promoting this idea. Earlier this year, Reddit users teamed together to invest in GameStop and other unprofitable companies as a joke. This messed with the market and artificially drove up stocks which weren’t valuable.

If clients do tend to get financial advice online, remind them to check the advice with a credible source instead of acting on the emotional pleas of influencers.

Overcome Your Fear of the Stock Market

Depending on a client’s Moneymax type, they may fear investing in the stock market. To some people, the stock market is an ambiguous and confusing financial institution and they have no clue where to start.

However, with money mindset work and the counsel of a financial advisor, even the most nervous and fearful clients can invest.

The first step to overcoming these fears is being able to identify your clients’ fears. One way to discover this is to run the Moneymax assessment on all your clients. Moneymax gives you a holistic view of a client’s money personality including traits such as how trustworthy they are with their money, how eager they are to invest, their risk level, and more.

Once you use Moneymax and have your client’s or potential client’s profile, you are able to address their fears about the stock market and create a customized plan to help them get over those fears.

Hold Your Investments

Another modern investing trend is day trading. With the rise of the app Robin Hood and similar companies, anyone can day trade. It’s as easy as playing a game on your phone.

However, trading stocks on a day-to-day basis hardly ever leads to long-term financial success, especially for those without a finance background.

A good rule of thumb to share with clients is that they shouldn’t move their investments for at least a year. Holding investments leads to long term financial success.

If one is constantly acting out of fear and changing their investments whenever a certain stock dips, they will not make a profit. Investing in the stock market is not the place to act out of fear. It’s the place to plan ahead and hold onto your investments even through the natural dips.

Of course, some people might like the risk of trading stocks more frequently. If this is the case with your clients, you could make a plan to help them do this while also allocating other funds for longer term investments.

While we don’t know what the future of the stock market holds and many short-term predictions are ominous, clients can still find success in investing. Managing investments, overcoming stock market fears, only listening to sound advice, and holding your investments are four ways to be a successful investor even in a nervous market.

How to Get More Financial Advising Clients in 2022

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If you’re looking to grow your financial advising practice in 2022, you need a tactical plan to get more clients. Getting more clients should depend on one thing: creating authentic connections with prospects.

In order to do this, you most likely need a marketing strategy and need to use financial psychology. Neither has to be complicated. Here are five easy ways to get more financial advising clients in 2022.

1. Utilize your LinkedIn

Social media marketing is all the buzz and all professional service providers should have a presence online. However, that doesn’t mean you have to start making TikTok where you dance and give financial advice.

One of the best platforms for professional service providers is LinkedIn. LinkedIn allows you to connect with your current professional network and use their search tools in order to expand it. It also offers the opportunity to directly message people, comment on people’s professional accomplishments, and more.

Two of the most important tasks to do on LinkedIn for 2022 is to optimize your profile so those searching for a financial advisor can find you and to consider having a LinkedIn services page. A service page is especially good if you’re self employed and in the early stages of your business.

To optimize your LinkedIn profile, make it clear what you do and who you help in the tagline, cover photo, and bio. A common mistake many people make is trying to showcase their accomplishments in a way that makes them look good on LinkedIn. Instead, frame your accomplishments so they show the benefits of working with you to prospective clients.

2. Create a referral offer for current clients

Despite all the advancements in the world of digital marketing, one of the best marketing tactics has been around long before Instagram, LinkedIn, or even MySpace: the best marketing is a happy client.

If you want to get more clients, ask current clients if they know anyone who might need your services. Feel free to even describe who your ideal client is. However, it’s also important to keep in mind that almost everyone is busy today.

In order to motivate current clients to give referrals, create some sort of incentive. This could be a $5 Starbucks gift card or a discount on one of your services. It doesn’t have to be big; even small incentives can go a long way.

After you have your incentive and list of clients to reach out to, craft a templated email you can send asking for referrals.

3. Develop a marketing strategy

Along with referrals and LinkedIn marketing, there are many other marketing tactics you can utilize. Which ones work best for you depend on your ideal demographics, resources and money available to invest, and personal preferences.

For example, if you’re targeting young professionals, digital marketing should play a big role in your marketing strategy with an emphasis on video content and newer platforms like Instagram and TikTok.

If you want to reach more seasoned professionals who want to improve their retirement plan, you might be better off with print advertisements or going to networking events in your local community.

There are so many marketing options available today. To figure out what works best for you, define your ideal client and create a plan to reach them where they hang out online or in person.

4. Pitch the story of your business to local media

While this one is a long game, being featured in the media can add credibility to your business and might bring in potential clients. You also don’t have to try to be featured in the New York Times or Washington Post for this to be effective.

In fact, being featured in local media may be even more beneficial as it’s only people within your community reading it.

To get started, write down your business’ story. Try to make it as interesting and insightful to the public as possible. You could also think of ways you could pitch a story which offers financial advice to the readers or watchers of local media.

After that, make a list of any local news channels, newspapers, or other media outlets which might be interested in your story. Try to find the media contacts who cover financial news or other similar types of stories. After that, craft an email pitching your story and see how they respond!

5. Create a better process for recruiting potential clients

While increasing the reach of your marketing efforts is great, you also want to increase your impact on potential clients who come across your brand. The best way to do this is to have a streamlined pitching and onboarding process. One of the most important parts of the pitching process is selling authentically. It’s also one of the most difficult.

We’ve all been on the receiving end of a sales pitch that sounds, well, sales-y. And if we’re being honest, those pitches make us want to flee instead of buy whatever the pitch is selling.

One of the best ways to avoid sounding sales-y is to create a genuine connection with prospective clients and make them feel like you get them. Luckily, there’s a fast, accurate way to get to know them before they even step into your office or onto a Zoom call: Moneymax.

Moneymax is a personality profiling tool that let’s you know where a client or prospective client falls on a scale for 13 different financial psychology characteristics. It gives you a holistic view of how they view money across a variety of facets, from investing to asking for a raise at work. Understanding the full picture of how a prospective client views money allows you to turn a sales pitch into a conversation where you’re working together to discuss the client’s financial future.

Since we believe so much in the power of Moneymax, we’re offering 10 free profiles to anyone who tries out the tool and posts about it on their social media. Subscribe to our email list for free to learn more details.

The Psychology of Risk in Financial Decisions

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Whereas some bulls might describe this market as a stock buyer’s dream, the advisers I have spoken with are describing it as a nightmare for many of their clients.

Modern Portfolio Theory has given us an abundance of literature on objective measures and definitions of risk, and supposedly, the most effective methods for financially managing them.

Risk as a subjectively experienced emotional state, however, has received much less attention, even though most investors and advisors acknowledge that how they respond psychologically to making decisions under conditions of uncertainty can have a dramatic influence on their financial success.

Definition of Risk

Risk is a subjectively or personally experienced emotional state influenced by the ability to make decisions under conditions of uncertainty.

Risk, by definition, contains important subjective elements not typically considered or evaluated by the investment community. It is the subjective risk of investors which will determine perceptions, reactions, satisfaction, suitability and perhaps even success.

If investors’ subjective definitions of risk don’t enable them to sustain their strategies when they make rational sense, then they will create their own financial loss in selling impulsively.

Any attempt to categorize investments according to an objective risk profile can be misinterpreted by investors because of their internal or psychological risk profile which ultimately predicts their reactions and perceptions of their investments and the satisfaction they reap from them. They have their own subjective realities and definitions of risk which prevent them from understanding the objective definitions of risk.

To truly understand your own risk and your clients, you should look at the psychology of risk. A great way to do that is to use the Moneymax assessment. The unique benefit of this assessment is that while it looks at risk, it also looks at 12 other factors which influence our financial decisions.

This gives you a more complete picture of your clients’ and your own money personalities. Risk is just one factor in a much larger picture–and you need to understand the full picture to better suit your clients’ risk levels.

Lowering The Chance of Objective Risk Is Not Lowering Subjective Risk

As investment advisers, you can employ a variety of well known techniques to lower the “chance” of loss: dollar cost averaging, diversification, careful asset allocation, and buy and sell disciplines. However, even though you may choose to emphasize and lower objective risk, you must still deal with the subjective reality of investors’ emotional responses to risk.

It is the psychological impact of the “consequence” of a financial loss on investors’ decision-making that makes the impact on how investors conceptualize risk. Their subjective realities are their objective realities and don’t necessarily make rational sense.

For most investors, risk is a concept related to loss, which is subjectively vs. objectively defined. It is based on feelings vs. facts. Because risk and loss are intimately connected, particularly the consequences of loss, how an individual has experienced and adapted to loss throughout life becomes a significant issue in one’s approach to risk.

All individuals experience both real loss and emotional loss. If one has not resolved former real or emotional losses, there is a tendency toward blindly eliminating losing situations in the face of downside loss and/or volatility. They experience an almost panic-like psychological urge to divest themselves of the psychological and paper position of loss without first understanding whether the fundamentals warrant such actions.

If resolved, they’ll be able to experience real vs. emotional reactions to loss and be able to feel ok and come through it. They would have more flexibility and adaptability to handle future uncertainty and would not shy away from future experiences.

Giving investors an opportunity to reflect on their real vs. emotional losses through interviewing and integrating that knowledge into their current investing style not only alleviates much unnecessary panic; it also prevents significant denial of loss. They need to ease back into investing. They’ll eventually adapt.

Managing Subjective Risk

Since objective risk doesn’t always equal the subjective risk level in your client’s mind, it’s important to learn to manage their subjective risk level. If you understand how risky a client perceives an investment or financial action to be, you can better serve them.

A key to this is the ability to empathize and understand where your client is coming from. So often, wealth advisors care only about the investments and not about how clients perceive the investments. But if you want to better serve your clients, you should take the time to better assess and understand their perception of risk.

Let’s look at an objective low-risk action: investing through a mutual fund. For some clients, this might be perceived as low risk because their parents did the same and had success. But if a client saw their parents lose money through poor investments, their subjective reality might be that any investment is a risk.

Once you understand the personal history and psychology behind why a client perceives something to be a risk, you can better empathize and rationally explain why a certain action benefits them.

However, you didn’t become a financial advisor to be a therapist. You don’t need to know a client’s entire backstory to better serve them, just their money personality. One of the best ways to discover their money personality and how psychology influences their financial decisions is with a quiz that has been well-researched and proven to work time and time again. One such assessment is Moneymax.

With an assessment like Moneymax, you can better understand where a client is coming from and the best ways to manage their wealth after the client takes one short quiz! If you run this quiz on potential clients, you can go into the first conversation truly “getting them” because you understand the psychology behind how they view risk and make financial decisions.

While financial risk can be objective, it often feels subjective to our clients. To better understand where they’re coming from and the psychology of risk, invest in learning more about them beyond the money and assets in their wealth portfolio.

What’s Your Comfort Level with Taking Financial Risk?

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If you’re puzzled in how to honestly respond, you’re not alone. Most people find out their true comfort with risk only after the fact—after they’ve lost money. Then, and only then, do they really know how much they can financially and emotionally afford to lose.

Your risk tolerance is your ability to make decisions, trading the known for the unknown, and to be comfortable with the decision once it is made.

Before you can begin to understand how to gauge your comfort level in taking risks with your finances and investments, think about how you feel in general about giving up something you know now without being certain of what your return will be in the future. The possibility exists that what you get will be less than your investment.

There are several reasons that risk is mystifying and elusive:

Tolerance for risk is difficult for most people to accurately gauge because it is a socially desirable trait, at least in the United States. The USA was founded by brave individuals who risked their lives and ventured into an unknown land for a greater sense of freedom and independence. Ever since, entrepreneurial behavior has been revered and rewarded. So, people like to believe that they’re higher risk takers than they truly are. They want to believe that they’d step up to the plate if they saw an opportunity for significant financial gain..

The truth is that most people would rather not gamble and take the financial risk because they would regret the potential loss in the process. They are not certain they will reap a just reward for the risk they’d take.

When you search your minds and hearts for your own sense of what risk means to you and how much risk you can comfortably tolerate, keep in mind that you, too, may be swayed by what you’d like to believe. Ask yourself how much money you can financially afford to lose. And then ask an equally important question—how much can you emotionally afford to lose? How will you weather the financial and emotional loss?

So what’s beneficial? Should you aspire to be a low, medium or high risk-taker? There’s no right answer or one-size fits all when risk-taking is involved.

Here are some guidelines that may help you in trying to gauge what’s appropriate for you in achieving your goals and objectives:

– Impulsive risk-taking usually pays off with buyers or sellers remorse.

– Calculated risk is always the preferred strategy and surest bet to make.

– Don’t risk more than you can financially or emotionally afford to lose.

– Look at what you may lose from risking as well as what you may gain.

– Experimenting with risk is more costly with age.

You can increase your comfort level with risk slowly and consistently over time—taking small but consistent steps which will eventually lead to bigger gains than a one-time gamble on the risky move paying off. Your confidence in yourself will also increase in the process if you succeed over time.

Take a look at this brief video with three financial advisers describing how they speak to their clients about risk and how to gauge what it means to them: http://www.cnbc.com/id/102397145

Stay tuned for Part 2 of “Gauging Risk” by understanding the money personality traits which play a big part in how you relate to risk.

Managing Anxiety in a Nervous Market

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“I no longer watch CNBC with my coffee every morning. I find that I just don’t want to be more confused and feel more anxious. I just don’t feel as optimistic as I used to–my whole mood has changed. I guess I’m feeling a sense of heaviness, uncertainty-maybe even a bit of depression.”

“My statement has sat in my unopened emails for weeks. I don’t want to look at or know the balance. I own a lot of shares of each stock and it’s great when the market is going up because there are big gains. But when it’s going down, I have to face large losses.”

I had these conversations last week with two knowledgeable and confident investors who are generally quite comfortable with volatility. Both of their “Entrepreneur” Moneymax® Profiles suggest that they are both highly motivated by performance with tendencies to take higher but calculated risks.

Often Bull markets are like blinders. Investors begin to believe in the fantasy that their stocks will always take good care of them and never disappoint them.

Since the “Great Recession”, the market has reinforced such fantasies. It has been a bull market for the past five years with one small exception in 2011 with a 10% pull back. Recently we have had the worst three days in three years.

In my years of experience, as a psychologist specializing in the psychodynamics of money management and investing, I’ve come to realize that there are certain important relationships which we must understand before we can achieve a consistent degree of success in the world of investing and in the marketplace.

• The first and foremost of these is that the majority of losses in the marketplace result not from poor trading decisions but rather from emotional and attitudinal causes.

• Investing by its very nature is an emotional business. Few investors have the self-knowledge, emotional stamina or self-control to make rational, intelligent and profitable decisions, particularly in times of stress.

So, often investors react wildly to bad news, often selling shares of perfectly good stocks. Had they held on, they would have realized that. But they, as many investors, react with their emotional money minds rather than their rational ones. They usually are at the “effect” of their feelings and not managing them well.

Why is it that some investors make rational decisions, stick with their choices and strategies while others act out their emotions and make bad investment decisions?

The field of Behavioral Finance has given insight into the mental miscues investors make that sabotage and crimp their returns:

• Fear of losing money

Psychologically, people give greater weight to a past loss than they do to a future gain. In fact, some investors find losing money so distasteful that they psych themselves out of investing altogether.

Investors don’t make reasonable trade-offs. The drive to avoid loss really sabotages any future gains or opportunities.

Solution: Determine ahead of time exactly how much money your clients can “emotionally” afford to lose as well as “financially”. They are often very different.

• Worrying about the wrong risks

Investors are held captive by unpredictable yet frightening events. People are traumatized by dramatic events. They can’t tolerate this anxiety.

Investors become blind and deaf to others’ advice in these times and tune out that advice, including their advisors’. They exaggerate current crises. What’s worse is that they forget the wisdom of lessons from the past. They overlook the fact that people who stayed fully invested during previous volatile times recouped their losses.

Solution: Help your clients base their decisions on what they can control, not on those they can’t control. Give them the rationale for their current strategy and
reiterate why it still makes sense. Repeat it several times and intermittently so they can hear it and use it as a guideline in regulating their knee-jerk and emotional reactions.

In other words, there is a vast world of emotion under the surface structure of investing. To know and understand the motivating forces behind investing, to know and understand why one investor becomes tense about losses, why one becomes greedy about profits, and why one either overreacts or fails to react is, perhaps, more than half the investment battle won. There is a high price to pay for the kind of innocence many investors bring to their investments and the way they interact with their investment advisors. Unfortunately, in many cases, to help your clients continue to maximize their financial returns, you must first help them master their emotions.

Investors Flight from The Market May Indeed Be A Rational Defense

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Some experts are calling the recent mass exodus of small investors from the market an irrational reaction to unfound risk; others are hypothesizing that small investors need cash and their home values no longer support equity loans to survive so they are using their 401k investments to pay bills.

Personally, I feel small investors are feeling a tremendous level of anxiety and are having difficulty managing it. Their high level of anxiety and their inability to tolerate it precludes them from keeping their money in the market for the long-term and continuing to believe that they will be okay. The true definition of a suitable investment strategy is whether investors can maintain it over time – even anxious and volatile times.

Apparently, these investors are incapable of managing the stress of being in what they deem to be a risky strategy. But even sophisticated investors and professional money managers are anxious and unable to predict current and future risk in the market. So why should the small investor be any different. The difference may lie in unrealistic expectations and inappropriate risk taking that led the small investor into the market in the first place that is the real problem. If they weren’t diversified; if they didn’t understand the downside and determine whether they could withstand it, then they are feeling much greater stress and lack of tolerance in coping with their current feelings of anxiety and distrust.

There are a myriad of reasons why investors have reduced their exposure to securities and gravitated to what they perceive to be less risky investments like bonds, cash, and other fixed income vehicles. Perception is a subjective reality that is difficult to alter with objective facts. The problem is compounded by the volatility of today’s market and objectivity being illusive. You just have to listen to CNBC for a while and you’ll hear experts hypothesizing, and disagreeing whether we’re out of a recession or just heading into another. So how is the small investor to feel confidence or a sense of trust that the market will be kind to them if they stay? At least by doing something, they feel they have taken some action in their best interest rather than remaining frozen from fear.

I have empathy for these small investors who fell into the trap of feeling that they would be saved by the boom in house prices, stock market rallies and the optimistic view that kept all of us believing that the good times were here forever. For those who did not save some of the rewards from those flush exuberant times, or diversify to manage the potential downside of such a upside for the market it is a particularly stressful time. It is a time of reflection to learn valuable lessons for the future as well as a time to take an inventory of what can be done to manage personal financial insecurity and stress.

What my work has taught me is that the ability to tolerate anxiety and fear, manage stress and take small and consistent steps to control what can be controlled is often a defining difference between achieving a successful solution and optimistic financial future or sinking further into financial stress and insecurity.

Needed for Our Time: A New American Dream

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Do you find yourself thinking about your expectations for financial well-being and how they’ve changed? We hear about this subject daily and we are all left with that puzzling question of what our future will hold? Americans are known as the eternal optimists always finding hope and feeling like we can fulfill our dreams to have the “good life”. However, in talking to many of our regular community members on www.kathleengurney.com, I’m finding a very different sentiment. Instead of optimism; I hear fear, anxiety, uncertainty, and even pessimism.

How soon might we find a crystal ball? Wouldn’t that be great? We all want reassurance that we’ll be okay. Of course, as adults we know that we can always do something in our own behalf to empower ourselves, but I find that there’s a desperate desire for the road map of how to get there from here.

So, in this state of distress. we can all follow the prudent advice of the rehabilitation programs that advocate day-by-day planning and focusing on what we can control. For me, I know that I can manage my anxiety about the future by having a concrete plan for my priorities. I try to make my goals reasonable, realistic and rewarding. My clients tell me they use those three descriptions and use them to manage their financial behavior and feelings. Clients find that my advice to take small steps consistently and purposefully help them achieve big gains over time.

So, maybe our new dreams will evolve and become clearer as we all start to focus on what’s most reasonable and rewarding for each of our individual situations.