• Warren Buffett
  • Volvo
  • NASDAQ Composite Index
  • 10 Year Treasury
  • Commercial Banks
  • JPMorgan Chase
  • Emerging Markets
  • Commerce Department
  • Stock Market
  • Home
  • Practice Management
  • Research & Insights
  • Alternatives
  • ETF Managed Portfolios
  • Home>Practice Management>Practice Builder>Strategies for 'Independent' Clients

    Related Content

    1. Videos
    2. Articles
    1. 5 College-Savings Stats Worth Studying

      Tuition inflation may be waning, but debt still weighs on many recent graduates, reports Morningstar's Adam Zoll.

    2. Distributions a Wake-Up Call for Taxable Account Holders

      As equity funds have fewer losses to offset gains, investors with taxable accounts should closely monitor their holdings and brace for larger tax bills this year.

    3. Ferri: 3-Fund Portfolio the Simplest Way to Best Return

      U.S.-stock, foreign-stock, and bond index funds can constitute a core portfolio with the flexibility to expand into other asset classes if desired, says author and advisor Rick Ferri.

    4. These Income Strategies Have Drawbacks

      Vanguard's Fran Kinniry urges yield-seeking investors to use history as a guide and focus on total return instead of taking on equity and credit risk associated with popular income-producing strategies.

    Strategies for 'Independent' Clients

    A steady, educational approach should yield positive results for your Independent behavioral investor type clients.

    Michael M. Pompian, 11/21/2013

    This month's article is the 11th in a series called "Building Better Client Relationships by Understanding Investor Types." This series is intended to help advisors create great working relationships with their clients by taking a step back and understanding the type of person they are dealing with (from a financial perspective).

    Individuals are different in the way they process information, vary in the way they behave when faced with a financial decision, and have different risk preferences, so it is essential that advisors interact with each client effectively. This often means that you must change the way you speak to different types of clients even though your advice may be similar across your client base.

    Some advisors fail in their tasks not because they don't have technical knowledge of the markets, understand the strategies of investment managers, or have systems that can deliver the best methods of portfolio construction, but rather because they don't understand what is truly important to the client and how to communicate and interact in a way that is meaningful and effective.

    As you know by now, I have dedicated a substantial amount of time promoting the benefits of behavioral finance research and making it accessible to large numbers of financial advisors. In my latest book, "Behavioral Finance and Investor Types," my primary objective was to simplify the practical application of behavioral finance by boiling down many of the complexities involved in diagnosing and treating behavioral biases into the simple concept of investor types, which I refer to as "behavioral investor types," or BITs. BITs are defined in large measure by the biases themselves and are categorized in a way that makes intuitive sense and can be easily understood.

    There are four behavioral investor types: the Preserver, the Follower, the Independent, and the Accumulator. In the last article, I reviewed the Follower BIT. In this article I will review the Independent BIT.

    Independent Behavioral Investor Type
    An Independent BIT describes investors who have original ideas about investing and like to get involved in the investment process. Unlike Followers, they are not disinterested in investing. They are quite engaged in the financial markets and may have unconventional views on investing. This "contrarian" mindset, however, may cause Independents not to believe in following a long-term investment plan, though many Independents can and do stick to a plan to accomplish their financial goals.

    At their essence, Independents are analytical, critical thinkers who make many of their decisions based on logic and their own gut instinct. They are willing to take risks and act decisively when called upon to do so. Independents can accomplish tasks when they put their minds to it; they tend to be thinkers and doers as opposed to followers and dreamers.

    Unfortunately, some Independents are prone to biases that can torpedo their ability to reach goals. For example, Independents may invest too quickly, without learning as much as they can about their investments beforehand. For example, they may mistake reading an article in a business news publication for doing original research. In their half-ready, full-on pursuit of profits, they may leave some important stones unturned that could trip them up in the end.

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