Stubborn clients? Blame the brain

Advisers hoping to convince clients that they need a long-term financial plan should do their best to appeal to the prefrontal cortex of their clients’ brains — and steer clear of the limbic system altogether. “The prefrontal cortex — the analytical part of the brain that controls contingency planning — is what differentiates us from lower life forms,” said David Laibson, an economics professor at Harvard University in Cambridge, Mass., who specializes in the link between investment decisions, and physiological and psychological factors. The limbic system, on the other hand, is emotional — it is a procrastinator that lives for the moment, he added. It is the part of the brain that prefers immediate lump sums rather than the promise of long-term security, Mr. Laibson noted. Most people are unaware of the part of their brain that seeks instant gratification and avoids long-range planning. In fact, according to to a survey of 1,000 people conducted by Prudential Financial Inc. of Newark, N.J., only one-third believed that their emotions affected their investment decisions. For the full report, see the upcoming June 4 issue of InvestmentNews.