Money Has More Excitatory Power than ANYTHING Else

Recorded at the Market Counsel Summit. Presented by: 

"When I was doing research for my book, The Behavioral Investor, one of the most fascinating things that I found was that money actually has more excitatory power than anything else we consider. So they measure the electrical activity in the brain. When people think about things like sex or death or other, you know, sort of excitatory things, nothing matches money.

So the power of money to make us excited, to make us sad, to make us anxious, is greater than just about anything else. And we see that borne out in the research, every single year since the APA, the American Psychological Association started studying anxiety and stress, and the American population money has been at the very top of the list of what stresses people out.

So what do we do about it?

You know, there's really three things that we need to be able to do for our clients to help them sleep better at night. And I call it my three E's of behavioral management.

The first is Education, they need to know what to expect, they need to have some basic fundamental knowledge of how your relationship will work, how markets work, and just some foundational financial knowledge.

The second piece is the right Environment, right? This is the right portfolio mix. And we're not worried about spreadsheet optimization, we're not worried about sort of numerical optimization, we're worried about behavioral optimization, how can they get the most out of a portfolio that they can actually live with.

And then the third piece is Encouragement. Even if they know what to do, even if their portfolio is aligned with their behaviors, they're still going to need those moments of encouragement of hand holding, and that's where advisors come in.

So in order for an advisor to start to think about how to reduce client anxiety, I think one of the first and easiest places we can start is with ourselves. Some of the offices that I observe, have cable financial news on in the background, they have magazines littering the employer there that are talking about the latest hot investment or the latest fad, we need to get away from that and focus on the long term. So one of the things that's most simple and most powerful that we can do is to get our clients to focus on their why.

Research shows that orienting person reminding them of their plan, reminding them of their purpose or of their why that simple act alone can increase behavioral compliance by 50%. So that long term why that recommitment to their values and their purpose, I think is one simple way in addition to those three E's to get them oriented to the right thing." — Daniel Crosby, Ph.D., Chief Behavioral Officer at Orion Financial Solutions

Resources: FP Transitions

Related: Why Advisors Need a Sustainable Business