Master Communicator

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Carl Richards shares his 20 years of experience trying to help advisers communicate more effectively with their clients.

How to prevent clients from making a classic behavioral investing mistake

Advisers should help clients forget about everyone else and realize "only your goal matters"

Dec 23, 2015 @ 10:13 am

By Carl Richards

At some point, we've all had a client walk into the office and start a sentence with something like "I heard" or "I read."

This happened pretty regularly after David Swensen wrote a book about his experience managing Yale's endowment fund. For a while, the guy was everywhere, and more than a few clients wanted to know how they could "invest like Yale."

It sounds like a great idea, right? Well, there's a pretty big difference between an individual portfolio and an endowment fund. Most people skip that part and jump right to, "but he made a lot of money!" Why wouldn't you do exactly what David Swensen did?

Because, as I explained to my clients, "You're not Yale."

It can be really hard to help clients understand why it doesn't matter what anyone else is doing, even if it's Yale or Jim Cramer. That's why the concept of "only your goal matters" is so important.

I know how easy it is for people to focus on what everyone else is doing. But we're in a great position to help clients forget about everyone else and avoid a classic behavioral mistake.

(More from Carl Richards: The challenge of keeping clients away from shiny new investing trends)

In this situation, no one else matters. It's not a selfish thing, but a personal thing. When our clients make decisions, we need to help them have confidence that what they want matters more than what anyone else wants.

Imagine a neighbor wants to retire early and travel around the world? Great. Good for him.

Help your client remember the goals you discussed months ago. The neighbor's travel plans have nothing to do with your client's goals. Same thing with the brother-in-law who found a can't-miss investment deal.

Encourage your client to wish the brother-in-law well, but keep in mind there's already a well-designed portfolio working for them.

It all comes back to a simple idea that most of us forget: The only goal that matters is yours. Help clients remember that fact, and it becomes a lot easier to ignore the noise masquerading as financial advice.

Carl Richards is a certified financial planner and director of investor education for the BAM Alliance. He's also the author of the weekly "Sketch Guy" column at the New York Times. He published his second book, The One-Page Financial Plan: A Simple Way to Be Smart About Your Money (Portfolio) this year. You can email Carl here, and learn more about him and his work at BehaviorGap.com.

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