Financial Consultant and Therapist

The role of therapist—and even amateur neurologist—is creeping into the financial advisory business. For some FAs, it may be time to put a couch in the office and to consult a map of the human brain.

The role of therapist—and even amateur neurologist—is creeping into the financial advisory business. For some FAs, it may be time to put a couch in the office and to consult a map of the human brain.

“Consultants should have a conversation with clients about how crazy they can be at times under emotional stress,” says Professor Andrew Lo, director of the Laboratory for Financial Engineering at MIT’s Sloan School of Management.

Speaking in layman’s terms while pointing to the different regions of the brain, Lo told a room full of CIMA designees at the Investment Management Consultants Association’s annual conference, at the Grand Hyatt in New York on Jan. 27 and 28, that their role in the lives of clients was evolving beyond pure money talk to something far deeper. “The consultant should be viewed as a therapist, really,” but “you might even want to do it quantitatively, using psychological surveys and tests,” he adds.

Why? Well, in the event of a strong emotional stimulus, higher brain functions—i.e., the ones that allow us to calculate important decisions, such as what to do with that plummeting biotech stock—are severely limited or shut down completely. “The old saying, ‘Don’t make important decisions under duress,’ is actually great advice,” says Lo. So understanding how your clients think and feel—not just in stressful situations—through tests and surveys is quite useful for creating a customized program.

One attendee said Lo’s ideas about a consultant’s evolving role accurately reflect what is happening in financial advisories around the country. Of course, it is a bit strange at first for clients. “If you sat down with a CEO to discuss his financial situation and asked him to take a Myers Briggs test [a personality test], he’d probably ask you what tree you fell out of,” said Mark Harbour, a consultant from Northern Trust. “But it’s moving that way.”

Presenter Thayer Willis, the daughter of Owen Cheatham, founder of Georgia-Pacific, says she knows firsthand the psychological problems wealth can cause. As the daughter of a rags-to-riches success story, Willis studies the effects it has on children. As a professional wealth counselor ( www.thayerwillis.com) and the author of Navigating the Dark Side of Wealth: A Life Guide for Inheritors (New Concord Press, 2003), she warns that wealthy clients and their advisors need to be aware of the potential negative powers of wealth on affluent families. Teaching children to create budgets, save and the importance of working helps them to understand the value of money.

Another theme at the conference: alternative investments. Affluent clients are interested in absolute-return and other strategies with a low correlation to the public equity markets.

Morgan Stanley Capital International (MSCI) introduced a hedge fund index fund. Covering 120 funds across 14 different investment processes, the MSCI Hedge Invest Index is open to unaccredited investors, has a $50,000 investment minimum, an all-in fee of 1.75 percent, is fully transparent and is ERISA eligible. And because it’s considered a security for tax purposes, not a fund, investors only pay capital-gains taxes upon resale.

“The tax advantages are tremendous for wealthy investors who want hedge fund exposure without the hassle that comes with it,” said one consultant. Advisors can get performance figures, find out how to buy it and other product information at www.msci.com.

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