Morningstar Magazine - August/September 2018 - 60

Investors

When bad things happen, you have to be there
to try to keep people on an even keel. During times
of crises, people need to have somebody they
trust, who has their interests at heart and knows
what they want, and who understands the field.
Newcomb: In many ways, what you're talking
about is something that advisors simply don't get
trained in. I hear from advisors that they're basically
psychologists but without the license. The asset
allocation is the really simple part. It's the human part
that's hard. We're trying to create some tools for
advisors to be able to have what they need in order to
feel competent to have these conversations and
not feel like they're crossing a line that they shouldn't
be crossing into the realm of psychology.

Kahneman: You're right, people who go into
this profession have not had that training. If there
is beginning to be general agreement that
this is the core function of an advisor, then there
is a need for continuing education. Roleplaying various situations and different kinds
of conversations could be very useful.
Newcomb: Do you think that formal psychological

training should be involved?

Kahneman: Not on the part of the advisors. You
must provide education in a way that is compatible
with advisors' professional role. But that's not
impossible. I think you have to promote the idea
that there is a need for it among advisors.
My guess is that organizations like Morningstar
are very well positioned, both to create the
demand and to create the supply. It's just a matter
of decision.
Newcomb: We've been investing very heavily in

efforts to do that. People want guidance on how to deal
with various situations, and sometimes the answer
is nuanced. We have to create models, so that people
don't feel like they're flying blind. There's human
connection, there's empathy, but there needs to be
some kind of mathematical guide, too.

Kahneman: Most people have something they
use to measure risk attitudes, but many of
these tools are really quite inferior. I think that
regret attitudes are very important to measure.
I think attitudes about potential disasters
are important to measure. The conversation
between the advisor and the client is an
educational opportunity. Part of it is for the

Morningstar August/September 2018

The conversation between the advisor
and the client is an educational opportunity. Part of it is for the advisor to educate the
client about what might happen and
to bring it to life, so that the client can make
an informed commitment.
Daniel Kahneman

advisor to educate the client about what might
happen and to bring it to life, so that the
client can make an informed commitment. If they
know that under certain conditions they
might be tempted to do a foolish thing, then

they need to have an allocation or a solution
where this is less likely to happen.
By discussing these things in advance, you are
in a way inoculating people. It's like a vaccine.

Table of Contents for the Digital Edition of Morningstar Magazine - August/September 2018