Six Ways to Help Clients Behave Themselves

In the wake of volatile markets this week, we thought it useful to revisit the concept of behavioral investing. No matter how much advisors stress the importance of taking prudent risk in the pursuit of long-term gain through rational asset allocation, many people let their emotions rule in the face of short-term turmoil.

In a recent piece, Cadaret, Grant in association with InvestmentNews deconstructed behavioral investing into six elements that are worth keeping in mind during uncertain times.* Understanding them can help advisors better help their clients when they may need it most.

1. Loss Aversion. Research shows that to an individual, losing feels more than twice as bad as winning feels good. The average investor would need the prospect of realizing $225 for the same level of risk of losing $100. The implication is that however rational and well-meaning an investor may be when filling out a risk profile, their fear of loss may override. Just as in good times an investor may be irrational in the pursuit of gain, so he or she may impulsively pull back at exactly the wrong time.

2. Anchoring. Anyone trying to sell a house in a buyer’s market may have experienced anchoring. It’s the tendency to focus on one piece of information – in this case the property’s purchase price – in evaluating a reasonable selling price. Often investors “anchor” on a fixed price of a security – what they paid for it or what they somehow think it’s worth now – before parting with it. This emotional attachment can get in the way of rational action, or inaction.

3. Familiarity Bias. Part of our survival instinct is to evaluate new situations through the lens of our experiences. Our minds tend to seek out similarities to past events to come up with a conclusion or assessment of a current situation, no matter how new and unrelated it may be to what we’ve experienced in the past. So, familiarity with domestic equities or mature industries may lead an investor to overweight them in a portfolio to the exclusion of less familiar asset classes or sectors, and possibly to the detriment of overall investment performance or risk management.

4. Mental Accounting. When it comes to money, we tend to compartmentalize. We may try to save a couple of dollars on a weekday lunch but think nothing of spending twenty times that while on vacation. Through mental accounting, we tend to view the same dollar amount differently based on what we’ve mentally earmarked it for. Retirement savings, for example, may be a mental compartment in which a dollar is more sacrosanct than in a self-directed trading account. Understanding these compartments, and making sure each has an appropriate share of total worth, can help a client buy, spend, save and invest more wisely.

5. Gambler’s Fallacy. This behavior tends to view a coincidental series of events as predictive. If a coin toss comes up heads six times in a row, it doesn’t mean it’s less likely to be heads than tails on the seventh. But the fallacy discounts the logic because we humans tend to see patterns in random events. So, if a stock gets repeatedly hammered, the flawed thinking says it’s got nowhere to go but up.

6. Herd Mentality. Market bubbles (and troughs) are a telling result of herd mentality. What starts as reasonable optimism sometimes takes on a life of its own as the herd adds more and more likeminded overenthusiastic investors to its ranks. Herds can also head in the opposite direction when reasoned pessimism turns to outright panic. Keeping excessive enthusiasm or dread in check can be the most valuable service an advisor provides to a client. In a recent study, Vanguard pegged the value of being an “emotional circuit-breaker” at as much as 150 basis points to a client’s portfolio over time.**

*  Behavioral finance: Six principles that fuel your clients’ fears, Cadaret, Grant in partnership with InvestmentNews Research

** Putting a value on your value: Quantifying Vanguard Advisor’s Alpha®, Vanguard Research, September 2016

Peace, Love and….Coffee?

While coffee lovers around the world await the eagerly anticipated Starbucks holiday cups, the company has thrown a brand reinforcing tidbit our way in the form of its newest reusable cup.

Sold at the register for $2.00, these cups are “grande” size and can be used when ordering drinks. Made of plastic, they are designed for multiple use and can be recycled. To date, they have all been primarily white, mimicking a regular Starbucks paper cup. From time to time, they have had a thematic or purely artistic design, but always retained the large central Starbucks logo as the visual focal point.

Different and yet instantly recognizable

The back of the cup does have the Starbucks name and the different boxes for your coffee drink order. The front of the new cup is different, however, in a few ways.

•  First, the cup background isn’t white, but black

•  Rather than the large logo in the center, the focus is on three large words in white stacked vertically: Peace, Love, Coffee

•  Finally, while the logo is there, it is very small and at the bottom below the three much larger words

Despite this relative lack of branding, most viewers instantly identified it as a Starbucks creation. Even when the logo itself was covered, a random, non-scientific sample universe still guessed that it was a Starbuck’s product. Why?

1. The brand style is so strong and pervasive that with or without a logo, you know it’s Starbucks

2. Starbucks is becoming the “kleenex” or “xerox” of coffee – we are on our way to a point where people don’t go get a “coffee” anymore, they go get a “Starbucks”

Winning brands are recognizable with or without a name or logo through consistent and stringent application of brand essence throughout every product or service they offer. Optima Group helps wealth and asset management firms become brand leaders in the industry.

It’s Time to Make the Donuts… Go Away

Big news, Dunkin’ dropped the Donuts from its name. If you really like donuts, this is huge. If you are like us, and follow branding trends, this is really huge. Some of you are skeptical, we get it. What’s the big deal, let’s face it, the whole rebrand thing didn’t work out so well for GAP. This is different.

For one thing, in a health-conscious competitive marketplace, doughnuts are not up there on the list of things that are good for you. By eliminating the word donuts from its name consumers could grow to believe Dunkin’ is an option for healthier foods. Ditching the donuts might help Dunkin’ in its ongoing coffee war with Starbucks, which dare we say, also sells unhealthy food products, but doesn’t allude to this in its name.

Paying attention

This may also be a case of a brand listening to its consumer base and adjusting accordingly. Think of it this way: you’re rushing out the door on a Saturday morning trying to get two kids onto two different fields for whatever sport they are playing this season and as everyone is buckling up you say, “We’re going to stop at Dunkin’ on the way.” Your teenager, your mom, your significant other…everyone knows them as “Dunkin’” (unless you’re an old-line New Englander) and now they have acknowledged it. Brands evolve and must align with what their audiences make them.

The company made the decision to become a “beverage-led, on-the-go brand.” As we sit here and watch the stock go up (for this moment in time anyway) it may appear it was the right decision. Time will tell, but we think it’s refreshing when a brand refreshes. They can take the donuts out of the name as long as they don’t take them out of the store.

It’s a Global Revolut(ion)

The newest entrant to the U.S. digital financial services wars is coming to your app stores, although the exact timing is unclear since the launch has been delayed multiple times due to technical obstacles.

Revolut, a digital financial services company is set to take on digital and physical providers of financial services in the U.S. Founded in 2015 by Nikolay Storonsky, an ex-Lehman and Credit Suisse trader, and Vlad Yatsenko, a former Credit Suisse and Deutsche Bank developer, its goal is “modest” – to become the Amazon of banking. Revolut started out with a prepaid currency card. However, in contrast to many digital providers that concentrate on doing one thing really well, Revolut believes that its success lies in offering multiple products and services to multiple markets. Today, it offers a range of both personal and business financial services (most digital offerings have focused on one segment or the other) and is set to launch in the U.S.

Personal services include basic, premium and metal bank accounts, with an escalating level of perks, and an array of “products,” such as global money transfers, a savings tool, a budgeting tool, a Perks offering (currently in Beta testing) and cryptocurrency exchange. On the business side, it offers a corresponding set of packages called Start, Standard and Professional. The basic tier is free on the personal side and with a low monthly fee on the business side, while the premium tiers each have a corresponding monthly fee.

This formula seems to be working. Its valuation has grown from $350 million to $1.7 billion in the past year, and while exact financials are not available, Revolut announced in 2017 that it had reached break even in terms of profit. Since then the customer base has grown by an estimated 1 million, according to an article in Forbes.

There are other providers that also offer a wide array of products and services to their markets, such as Moneysupermarket in the U.K. While Moneysupermarket offers an extensive number of products and providers per category, Revolut aims to differentiate itself by “providing the best product in every category.”

Whether Revolut lives up to its name and become a significant market disruptor in the U.S. remains to be seen. What is clear is that both traditional financial services and digital providers face increasing competition across the board from each other and new entrants to the industry, and all must continue to innovate and pay close attention to their customers’ needs and preferences in order to survive.

The Best of Both Worlds

This past summer the Journal of Financial Planning released findings from The 2018 Trends in Investing Survey, which represents the views of largely IAR/RIA, fee-based or hybrid financial advisors.

Not surprisingly, current usage of ETFs by advisors was high (at 87%) and expected to continue to rise in upcoming years. However, the belief in passive management was not unreserved. The table below shows that in 2018 just 22% of advisors believed that 100% passive portfolios produced the best overall investment performance even after account management costs. (Of course, the belief in fully active portfolios was even weaker at just 12%)

Instead, advisors overwhelmingly favored a blend of active and passive management. This is consistent with the growing trend toward core-satellite portfolios that use low cost passive vehicles for more efficient asset classes and high alpha products for asset classes where active management can add value.

We expect core-satellite portfolios to continue to grow in popularity among RIAs and advisors using model management approaches. We also expect managed portfolios from leading asset managers to continue to add active/passive options to their product line ups.

Interested in the full report? Click here.

Source: 2018 Trends in Investing Survey, Financial Planning Association (FPA) | Journal of Financial Planning | FPA Research and Practice Institute™

The Words You Choose Matter

Frank Luntz, a political consultant, pollster to the Republican party and skilled communicator, understands the value and influence a name or description can have on audiences. He knows that two phrases meaning the same thing can result in two very different perceptions and skew research and polling results accordingly.

As an example, the term “death tax” is used versus “estate tax” to help drum up opposition to inheritance taxes. Similarly, “tax relief” may connote an easing of an unfair burden whereas “tax cut” might evoke a gift to the wealthy.

This can be extended to financial services. The Alliance for Lifetime Income (Alliance), a confederation of financial services firms (mostly insurance companies) seeks to elevate the benefits of having a protected income in retirement.

It’s how you ask the question

When people are asked if they would favor a financial solution that would guarantee them an income for life with the opportunity to participate in market gains, the response is overwhelmingly favorable. But what the Alliance is referring to is an annuity, which is not always viewed favorably by advisors.

Not surprisingly, then, the Alliance’s June 14 press release launching the initiative mentions “protected lifetime income” or “protected monthly income” more than twice as often as “annuity” or “annuities,” and even then, these latter terms are usually de-emphasized by being grouped with other terms like “pensions” and “comprehensive retirement plan.”

Our aim is not to make a judgment call on annuities or other financial products, but to illustrate the significance of language, especially as it applies to topics that are complicated and/or controversial.


Race to the Bottom Heats Up

Earlier this month Fidelity became the first investment manager to offer no-fee index funds. In a splashy TV and print campaign the mutual fund giant introduced the aptly named Zero Total Market Index and Zero International Index funds. At the same time, Fidelity announced that it was lowering fees on other core mutual funds by an average of 35 percent.

Then, this week JP Morgan became the first big bank to introduce an app offering free stock and ETF trading. The “YouInvest” service allows users 100 free trades per year and $2.95 per trade thereafter. For Chase Private Clients with at least $100,000 in holdings, free trades are unlimited.

Both events are just the latest moves in what has become an intense and persistent price war in asset management and brokerage. They evidence the cut throat competition among leading providers in the space and the rising demand among investors, particularly millennials, for lower fee products.

They also indicate a new approach to “selling” what are highly popular but commodified services. Fidelity and JP Morgan have both positioned their new free offerings as incentives or complimentary services encouraging clients to build and sustain a broader relationship with the institution.

For wealth managers, the price war is a mixed blessing. While it may increase client sensitivity to fee levels, it lowers the asset management fee for core products allowing the advisor fee to remain competitive.

3 Communications Tips for Financial Awareness Day (or any day)

Are you aware that Tuesday August 14th was Financial Awareness Day? If not, you may be thinking, “That would have been a great reason to reach out to clients and prospects.”

Your clients enjoy hearing from you. The informative insights and news you give them focus on improving their lives and financial well-being. Here are some tips to help communicate more effectively with your clients and prospects and stand out in this competitive marketplace.

Be where your clients are. Right now, 46% of all marketing dollars are spent on digital, including advertising dollars. Social media and email marketing are both excellent channels to help keep your brand top of mind. Email marketing is especially effective because it allows one-to-one conversations and the ability to segment your audience and provide unique communications to specific client profiles.

Many of your clients and their friends and families are active on any number of platforms, such as Twitter, LinkedIn, Facebook and Instagram, using them for business, personal purposes or sometimes both. Aside from communications, social media has become a valuable asset for capturing information about your target markets and understanding their behaviors, intentions, lifestyles, and the best way to reach them.

Provide relevant content.Sometimes it feels like attention is the scarcest of resources. By continually testing and measuring what types of content resonates best with your clients, you can increase your relevance and value to them. While blog posts are often long and thorough, studies show that people are absorbing content in timeframes that are fractions of what used to be the norm. That may mean offering more frequent, incremental messaging to supplement longer white papers or online insights.

Be consistent.Regularity is key to building awareness. Don’t confine your communications to special days like Financial Awareness Day. Be out there emailing, sharing and tweeting relevant content consistently and regularly (at least every week).

Engaging Survivors and the Next Gen

Two of the most efficient ways to grow an advisory practice are 1) to help your existing clients grow their assets and 2) through referrals. Yet, many advisors continue to ignore an opportunity that combines both: the surviving partner and the next generation. As many as 70% of survivors abandon the advisor upon their partner’s death as do 90% to 95% of surviving offspring. With an estimated $40 trillion being transferred to surviving family members in the next three decades, that’s a lot of lost opportunity.

A recent study by InvestmentNews Research in conjunction with Cadaret Grant, reveals that only 24% of advisors currently have developed a plan to engage survivors and the next generation, but of those, more than half report the plans have paid dividends. The report recommends putting a plan in place, one that addresses these three imperatives:

Engage the non-involved partner.

Often, one partner is less engaged than the other because of either indifference or deference. How to engage them?

•  Involve them in all substantive discussions and decisions to be sure their goals too are being addressed

•  Encourage their questions and provide answers that are jargon-free

•  Talk frankly about what will happen when one of the partner dies, and how that may change depending on who predeceases whom

Understand and work with adult children.

Two practical ways to foster engagement with children are to 1) have a younger member of the advisory team serve as a key link, and 2) waive the minimum requirements to become a client as part of a relationship focus. Once a dialogue has been established, there are a number of areas to engage on:

Strategies to pay down debt

•  For new or even established parents, 529 plans and other strategies for college saving

•  Insurance needs and the importance of wills, living wills and healthcare powers of attorney

•  Including them on your firm’s thought leadership and topical written communications

•  Providing links to financial information they’ll find useful for their children and for themselves

Consider the needs of your elderly clients and their families.

With a growing number of clients in their late 80s and 90s, many advisors may be, or could be, dealing with children of clients who themselves are nearing retirement. Many of them may not be satisfied with their advisor or may not have one at all. Providing useful information and assistance to their aging parents can be a valued service to them now, while at the same time giving them a sense of what you may be able to do for them in the future. Specifically:

•  Helping them detect and prevent elder fraud and abuse

•  Organizing financial information

•  Providing information on eldercare

•  Providing referrals to trusted elder-law attorneys

How Words Become “Official”

“Without knowing the force of words, it is impossible to know more.”


Words are powerful – they can hurt, insult, make you happy, fulfill dreams; they can even be legally binding. They are a critical part of marketing; the “right” words can make a campaign. But how does a word get its big break and make it into the dictionary? How did “jabberwocky” go from being the title of a nonsense poem by Lewis Carroll to a word in the Oxford English Dictionary? There is a well-defined protocol to determine if a word is worthy. Even with this rigor, both the OED and Merriam-Webster add several thousand words to their online editions every year.

Use it or lose it

According to Merriam-Webster, “a word gets into a dictionary when it is used by many people who all agree it means the same thing.” How else could a word like “fracking” make the cut? OED follows a similar process, although it highlights its use of technology in its process. OED also solicits suggestions directly from “the language community” and the public, so if you have a word you think should make it in, visit the OED community.

Sometimes old is new again

Dictionaries aren’t just looking for brand new words, like “selfie” or “hashtag.” Sometimes it’s all about a new meaning for an old word, such as mouse (no, not the one that squeaks) or cookie (unfortunately, the new type of cookie isn’t nearly as delicious as the traditional type).

But wait, there’s still more

Merriam-Webster cites three main criteria for inclusion:

•  Frequent use

•  Widespread use

•  Meaningful use

And the winners are

The dictionaries are regularly updated online to include new words added. For example, the OED updates its dictionary four times a year and in June 2018 added over 900 new words. Some seem a little more esoteric, such as “precariat,” a class of people whose employment, income and living standards are insecure or precarious, while some veer to pop culture, such as “spoiler alert.” As in spoiler alert, this is the end of this post.