Make sure they meet the 3 E’s

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While the rules of personal finance can be quite simple, they are not always easy to implement – ​​actions such as saving for retirement or investing in the market require certain behavioral changes that can be easier said than done.

dr. Daniel Crosby, a psychologist and Chief Behavioral Officer at Orion, a wealth technology and advisory solutions company, suggests that financial decisions, in particular, can be made better with the help of someone else. In this scenario, he says he will look for a financial advisor who offers support on three levels: education, environment and encouragement.

dr. Crosby’s reasoning is that individuals, especially investors, sometimes need multiple layers of intervention to influence their behavior. “Finance is ‘simple but not easy,’ which can lead to a gap between knowing what we should be doing and what we are actually doing,” he tells Select. As a result, a counselor’s job is to educate, change the environment, and provide relational encouragement.

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When hiring a financial advisor, find someone who offers support about the 3 E’s

1. Education

More than what you know, education involves knowing what you don’t know, or what Dr. Crosby calls “meta-knowledge.”

“It’s not critical that you know how to fix your car, but it’s critical that you know when your car needs repair and when to seek outside help,” he says. That same theory can be applied to your finances. We may know the basics, but what might be more important is knowing when our finances need professional guidance.

For example, as part of investor training, an advisor can also help them better manage expectations, whether they are too optimistic or not optimistic enough. “It’s hard to get an investor to behave appropriately when their expectations don’t match reality, so education can provide a useful ‘baseline scenario’ here,” explains Dr. Crosby out.

Let’s say you are stressed about market volatility. An advisor can help provide context that shows that volatility and sufficient return can indeed coexist. This simple intervention helps prevent fear mongering and keeps an individual invested during recessions, which is what experts generally recommend. While the market doesn’t always go up, it’s in an investor’s best interest to stay on track. Investing is a long game that will most likely benefit you if you stick with it over time.

“Education tells us what to do, helps us understand what to expect from markets, and lets us know when to look outside for help,” said Dr. Crosby.

Looking for help outside? Those who have a brokerage account with a company such as Charles Schwab or Fidelity may already have access to a financial planner. Robo-Advisor Enhancement also offers users the option to pay for one-time advisor consultations, which cost a fee ranging from $299 to $399. Investors with a $100,000 balance can upgrade to Betterment’s premium plan, which offers unlimited access to real financial advisors for an annual fee of 0.40% of your fund balance.


Our behavior is heavily based on our environment, which brings us to the next point of what to look for in a financial advisor. dr. Crosby suggests that advisors can help with two environmental influences — the way we build our portfolios and the way we consume information — both of which have an impact on our financial or investment behavior.

“Environmental factors are often more predictive of actual behavior than intention, meaning we need to think carefully about how we allocate our resources and our ‘information diet,'” explains Dr. Crosby out. “We have behavioral tendencies that are more or less consistent, but extreme circumstances can make us act in ways that would surprise us.”

The way we build our portfolios, or portfolio construction, is only as effective as how we respond to the market. “Basically, the mathematically optimal wallet is only really optimal as far as the customer can withstand the ride,” says Dr. Crosby. He adds that some of the best-performing funds of the recent past have had negative real returns for investors because of their tendency to enter and exit positions at exactly the wrong time.

The way we consume information, or information intake, includes the sources we turn to and how often. Constantly watching the markets, for example, is the No. 1 investment mistake we hear from financial experts. The markets are constantly moving and being in an environment where you try to track in real time can have a negative effect on your behaviour, forcing you to constantly monitor or change your investments when it is better to leave them alone for the long term.

“The future is pretty average on average, and things that are newsworthy are by definition deviations from the average,” says Dr. Crosby. “By watching every tick of the market, checking portfolios too often, or tuning in to melodramatic news sources, clients can create an environment that is not conducive to calm long-term thinking.”

3. Encouragement

All relationships in life should provide some form of encouragement, and the relationship you have with a financial advisor is no exception. “Advisor’s encouragement can have a positive, holistic impact, improving both returns and behavior by some estimates,” says Dr. Crosby.

dr. Crosby points to research that suggests that those who work with advisors do significantly better than their “no advice” colleagues, even when they take into account a host of socioeconomic factors. According to the report he cites, those who had a long-term relationship, such as in 15 years or more, with a consultant had 2.73x the wealth of DIY investors. He notes that this is likely due to a combination of higher returns — the study suggests 1.5% per annum — and decision and behavioral support. There is also some evidence that working with a counselor positively affects a person’s quality of life in general, positively reflecting one’s happiness and communication between spouses.

What it comes down to:

Editor’s Note: Opinions, analyses, reviews or recommendations in this article are those of the Select editors only, and have not been reviewed, approved or otherwise endorsed by any third party.

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