Behavioural coaching - Adviser's alpha - Insights from the US market (Part 2 of 4)

Vanguard | 19 July 2012

In the second excerpt from a Vanguard Group, Inc. webcast, you'll hear an explanation of the role of the adviser as behavioural coach.


Rebecca: You know, we often hear when we talk about this new value proposition, advisers as behavioral coaches.  What do you think about that role?

David: You know, encompassed in this whole emotional connection that you make to your clients about not just what their goals are but why they value their goals, and it does take some skill development of the adviser to learn that it's not just about asking the question on a page.  It's really the questions that should be raised based on the client's answers.  Why do you value that goal?  Because then you can learn some really intimate things about the client and learn how to make a big difference in their life.

Rebecca: Just sounds a lot like psychology as opposed to maybe some of the hard stuff that we're used to focusing on in our practices.

David: I really think as an industry, we've kind of inverted emotion and reason in our practice.  You know, we try to get clients to not use emotion and get them to focus on all these reasoned facts, but focusing on complete reason makes you – to the client, makes you feel like you’re indifferent to emotions, and most people make decisions with some extent of emotion.  I mean, there's very few people are completely rational robots and if you can embrace that emotion and figure out how to encapsulate that into the value that you deliver in your advice and then make sure that they're educated about reasoned facts, you got a real winning formula for making a difference.

Rebecca: So Fran, how do we feel about that idea of a behavioral coach?  I know there's some common behavioral traps that we see clients fall into.

Fran: We think it's an incremental or marginal compromise, so for example, you're sitting there and it's November of 2008 and the market's coming apart and your investor wants to go all into cash or money markets from 60/40 having, you know, a more empathetic conversation, a more compromising conversation, and trying to make sure that investor, instead of going 60/40 all into money market, can you find a middle ground and really negotiate this or can you keep them 30/70 – 30 equity, 70 fixed income – instead of going all out because we can't remove the emotion and underneath all of this, it's their money and so we cannot be robotic about it.  I agree entirely, and we do have to find a way to compromise and negotiate to kind of keep them as close to where we want them but also sharing the emotion that they just went through.


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