Morningstar Magazine - April/May 2018 - 31

Spotlight

Behavioral Finance

Stop Teaching, Start Coaching
Coaching to Mitigate Panic

34
37

Better Than an Algorithm
Advisors should focus on the
human side of investing.
OVERVIEW

Ray Sin, Samantha Lamas, and Michael Leung

With the rise of robo-advice, new regulations,
and other changes, it often seems like the
traditional role of the advisor-particularly that of
portfolio manager-is under threat. We believe,
however, that advisors are in an excellent position
to capitalize on these changes by building on
longstanding skills and roles. Being a good advisor
has always been more than selecting investments and managing portfolios. Psychology is an
essential part of working with clients. To quote
Benjamin Graham, "The investor's chief problem-
and even his worst enemy-is likely to be himself."
As investors, we all have behavioral biases,
such as overconfidence, confirmation bias,

and loss aversion, that lead us astray when
making financial decisions. Advisors, however,
are in a unique and powerful position to
help their clients overcome these. To capitalize
on the changing landscape, advisors need
to serve as behavioral coaches and help
clients navigate their biases and make more
rational decisions. Advisors help investors
cultivate good financial habits, stick to
their investment plans, and avoid emotional
responses that affect behavior and undermine
long-term success.
In this article, we will summarize the ways
in which the best advisors already serve
as behavioral coaches, and we'll offer additional
techniques to help advisors improve by
applying recent lessons from behavioral science
to their practice.

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31


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Table of Contents for the Digital Edition of Morningstar Magazine - April/May 2018

Contents
Morningstar Magazine - April/May 2018 - Cover1
Morningstar Magazine - April/May 2018 - Cover2
Morningstar Magazine - April/May 2018 - 1
Morningstar Magazine - April/May 2018 - 2
Morningstar Magazine - April/May 2018 - Contents
Morningstar Magazine - April/May 2018 - 4
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