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My Behavioural Journey

Everyone encounters a point in their career where a pivotal decision is required. For me, that happened in 2009. I had been a financial advisor since 1993 and using investment policy statements (IPSs) to manage portfolios and guide investor behaviour. But I realized I could write IPSs on my own using much cheaper products while keeping advisory fees unchanged. That allowed me to pass substantial product cost-savings on to clients, but the new format involved manual rebalancing with client approval.

 

The global financial crisis began in 2007 and didn’t end until the market hit bottom in March,  2009. My clients all had IPSs, and like many advisors I thought of myself as a behavioural coach who would get clients to rebalance their portfolios because of our agreed- upon plan. But most of my clients refused to do that, even with the agreement in writing. This contrasted with the previous rebalancing format, where everything was done automatically.

 

So I wondered how good a coach I really was, and how other financial advisors handled their clients. When human beings are afraid of losing their life savings because of a significant market downturn, the best-laid plans can easily go out the window. I concluded that what really matters is advisors should do whatever is necessary for the best interest of their clients.

 

As a result, I decided to become a portfolio manager. I would then have discretion over client-trading activity in a revised, expanded role as a fiduciary who puts client interests first. Instead of working with clients as collaborators, I started to work with clients as delegators. What’s the difference? It takes two parties to collaborate, but only one to delegate. After all, I had been  giving good advice to my collaborative clients, but they weren’t taking it.

 

Around that time, I got interested in ‘choice architecture’ – keeping all options on the table while finding ways to help people overcome self-sabotaging habits.

 

My thinking was further refined in 2022 when regulators changed the primary way of assessing client suitability. With these changes, portfolio managers no longer needed to use IPSs, and suitability would be assessed through risk tolerance and risk capacity. In other words, portfolio suitability was not about how much was invested in cash, bonds, or stocks, but how much was in low, medium, or high-risk investments. This was a welcome development.

 

I have learned from experience that the clients who best fit the STANDUP style are delegators. Those who purport to be collaborators are not as collaborative as they think. My clients can take comfort knowing we’re on top of market developments and allow us to do our job as fiduciaries without emotional distractions compromising the process.

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