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Personality and Finance

Learn how personality is defined and the different personality types you may encounter among your financial advisory's clients.

Justin A. Reckers and Robert A. Simon, 04/19/2012

In our next two columns, we are going to dive into personality--including personality types and when personality styles become problematic and maladaptive. We will relate how you, the advisor, might need to take different approaches for clients with different personality styles, including how you establish rapport and develop relationships with your clients. We'll cover what personality might indicate about the client's risk tolerance and needs with regard to investments and planning, and what kinds of cognitive distortions might be found in particular personality styles.

Personality is best thought of as an individual's consistent, enduring, predictable manner of behaving, experiencing, and interacting with others and with the world. For example, some people are fundamentally emotional in their orientation, whereas others are more intellectual/cognitive. Some people are organized in their orientation, whereas others are disorganized or even chaotic.

There are numerous conceptual systems for understanding personality. Often, how personality is classified depends on the reason for the classification. For example, in the business world, the Myers-Briggs Type Indicator is a commonly used test that classifies personality types. This test, which many believe is particularly helpful in constructing work teams and in understanding how employees interact within the work environment, evolved from Carl Jung's theory of types. Myers-Briggs classifies individuals along four continua:

--Extraversion v. Introversion
--Sensing v. Intuition
--Thinking v. Feeling
--Judging v. Perceiving

The Five Factor Model of personality developed by Costa & McCrae emphasizes the following personality traits (factors):

--Openness to Experience (inventive/curious v. consistent/cautious)
--Conscientiousness (efficient/organized v. easygoing/careless)
--Extraversion (outgoing/energetic v. solitary/reserved)
--Agreeableness (friendly/compassionate v. cold/unkind)
--Neuroticism (sensitive/nervous v. secure/confident)

In systems such as the Myers-Briggs or the Five Factor Model, individuals are characterized on each of the dimensions, resulting in a multifaceted conceptualization of their personality. In such systems, there is no such thing as a "normal" or "ideal" personality. Instead, personality is seen as a consistent set of behaviors and attitudes.

Further, each personality style or type brings with it a set of strengths and a set of weaknesses. For example, a person who is inventive/careless/reserved might be a creative type who thinks outside the box but may also be shy and hesitant. Such an individual might be well suited to work in a creative environment where interactions with teams of people are not frequently necessary.

Justin A. Reckers, CFP, CDFA, AIF is director of financial planning at Pacific Wealth Management www.pacwealth.com and managing director of Pacific Divorce Management, LLC www.pacdivorce.com, in San Diego.

Robert A. Simon, Ph.D. www.dr-simon.com is a forensic psychologist, trial consultant, expert witness, and alternative dispute resolution specialist based in Del Mar, Calif.

The author is a freelance contributor to MorningstarAdvisor.com. The views expressed in this article may or may not reflect the views of Morningstar.
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