Do Your Clients Want To Be Rich Or Avoid Poverty? - Pocket Risk


Helping Financial Advisors Know Their Clients – Risk Profiling, Client Psychology, Behavioral Finance, Compliance

Do Your Clients Want To Be Rich Or Avoid Poverty?

I was recently reviewing a list of psychological investment biases in a paper called “How Biases Affect Investor Behaviour” by H. Kent Baker and Victor Ricciardi and I realized something is missing from the bias canon. I call it the “Not knowing what you want bias”. My belief is that if your clients are unsure about what they want, they become wildly susceptible to all the biases mentioned in the paper above. A lack of focus drives them off course.

When I speak to advisors and ask them what their clients secretly want, they say “to get rich”. But investing to get rich is far different than investing for a comfortable retirement. This secret desire to get rich is what causes people to chase technology startups, biotech companies and non-traded REITS.

If a client’s stated goal is to have a comfortable retirement then they can probably reach it so long as they invest early and often through multiple decades. But if they want to get rich, they should look beyond the public stock market.

Counteracting this “get rich” desire can be accomplished by re-iterating the goal at every client meeting. Tell them again and again and again. Our goal is not to get rich, but to achieve a comfortable retirement.

If they inculcate the goal, they will eventually realize their retirement account is not for “getting rich” and will use their careers as the wealth creation engine.