Merrill Lynch advisers embrace a goals-based investing approach

Assessing clients' feelings about money, investing and risk tolerance helps with prioritizing and goal-setting.

Jan 12, 2014 @ 12:01 am

By Joyce Hanson

Kathleen Delong, a senior Merrill Lynch adviser in Allentown, Pa., has embraced the emotional side of behavioral finance.

She encourages her clients to fill out Merrill's My Investment Personality questionnaire, which assesses clients' feelings about money, their investing mindset and risk tolerance.

“The goals-based approach helps people with prioritizing and goal setting,” Ms. Delong said. “As you get into the conversations more, it changes the focus.”

For instance, a husband and wife with whom Ms. Delong has worked for nine years retired two years ago after using a disciplined approach to saving.

When she asked them to fill out the personality assessment last year, she learned that they no longer felt responsible for their grown children's financial well-being and were ready to travel more. But at the same time, they said they would feel guilty about taking money out of their retirement plan.

“So we looked at their life insurance policy, which they had taken out in case one of them died while they were raising their kids. We did a 1035 ex-change into an immediate annuity with a guaranteed income stream for life,” Ms. Delong said.

“Once a year, they'll draw from that, and they can plan trips accordingly,” she said.

"INSIGHT-SELL'

Sophie Schmitt, an analyst at financial research firm Aite Group, is familiar with Merrill's personality questionnaire, and she characterizes it as a new way of selling products and services.

“I see it as a way to insight-sell — to show you that you're smarter than the client in some ways,” she said. “They're expanding their value proposition with this idea of: "I'm your financial planning shrink.'”

To be sure, Merrill's executives see the value in adding behavioral finance along with academic research to boost their business. Michael Liersch, a Harvard University-trained economist with a doctorate in cognitive psychology from the University of California, San Diego, serves as Merrill's behavioral-finance director, and there are plans to add more behavioral-finance specialists to the staff.

This year, as part of the implementation of a five-year strategic plan to shift Merrill's primary focus to goals-based wealth management, the firm will introduce a program called Merrill Lynch Clear. It uses the science behind behavioral finance along with research on aging by Age Wave, a think tank devoted to studying the demographic phenomenon of longevity, to help advisers talk about retirement with clients.

“Longer lifespans, longer time horizons, the sandwich generation and elder care are some of the most powerful trends that are impacting the lives of our clients and our business,” said Andy Sieg, head of Global Wealth and Retirement Solutions, who is a primary mover behind the five-year plan.

Gail Graham, chief marketing officer of registered investment adviser United Capital Financial Advisers, is skeptical about Merrill's use of behavioral finance, saying that the firm's goals-based wealth management seems more like a marketing ploy than a genuine desire to understand clients' emotional responses to money.

United Capital, founded in 2005, spent $20 million and sought the assistance of behavioral-finance professor Dan Ariely, author of the best-seller “Predictably Irrational: The Hidden Forces That Shape Our Decisions” (HarperCollins, 2008) when creating the firm's Money Mind behavioral analyzer and Honest Conversation planning tool, which has been in broad use at the firm since 2010, she said.

“We think it's great that firms are getting a better understanding of how emotional money is for clients and employing behavioral finance, but for most firms that's a business strategy or a growth tactic,” said Ms. Graham, a former executive vice president in strategic marketing at Fidelity Institutional Wealth Services. “Merrill Lynch is a market leader watching how customers are changing, and they need to protect themselves.”

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