Not everyone can be, or wants to be, a financial advisor. For most people, their financial decisions are driven by their beliefs and experiences rather than expertise in the industry. While life experience can be a great teacher, these beliefs can also negatively impact a person’s ability to make practical, impartial decisions for themselves and their families.
In a recent episode of our Wealth Matters radio show, two of our partners, Craig Frankel and Robert Port, sat down with special guests Andy Avera of Avera Wealth Advisors, LLC; Jeff Bernier of TandemGrowth Financial Advisors, LLC; and Taylor Stanfill of Verisail Partners, LLC to discuss common financial mistakes their clients make and how their financial advisors can help them avoid making such mistakes.
Here’s what they had to say.
Identifying and Avoiding Bias
“Let me first congratulate you on being human,” says Jeff. “We all have these biases — it’s part of the human condition.” This is one reason it’s important to invite a wealth manager into the discussion to give you an objective perspective.
Taylor admits that identifying his clients’ underlying biases is one of the hardest parts of his job. By asking many questions about the person’s upbringing, spending habits, fears, etc, he’s usually able to uncover impractical ways of thinking. This “ah-ha” moment is crucial for the client’s self-awareness, which can only lead to more mature and well-thought-out financial decisions going forward.
Practicing Humility
Especially in the cases where a married couple seeks financial advice, setting pride aside and not allowing themselves to become defensive is the only way a productive conversation can take place. Married couples tend to know each other better than anyone — the good, the bad, and the ugly. It’s important for these clients to go in as a team rather than two people set out to point out each other’s flaws and biases. Otherwise, the advisor won’t be able to make any real progress in assessing their financial behaviors and true beliefs.
Acknowledging Loss-Aversion
Our fear of the loss of a dollar tends to be twice as visceral as our excitement of gaining a dollar. This loss-aversion mindset prevents a lot of individuals from investing the way they should — robbing them of significant wealth opportunities.
Andy says that one way he alleviates this concern from his clients is by building out a detailed investment portfolio to prepare them for the market’s ups and downs. The hard truth is that the market will go down, and you will lose money here and there. Going back to your goals and examining this portfolio with your advisor will help you focus on the bigger picture and stay level-headed.
To hear more helpful behavioral finance tips, listen to the full episode of Wealth Matters here.
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