What is a Behavioral Financial Advisor BFA™ ?
How a credentialed Behavioral Financial Advisor (BFA™) benefits you!
The Brain is hardwired to reflex before it reflects. An emotional response takes 12 milliseconds while a cognitive response takes 40. This is good if you are trying to escape a burning building, but it poses challenges if you are making investment decisions.
Remember that one of the fundamental assumptions in modern portfolio theory, authored by Markowitz, was that investors were rational in their decision making. Asset allocation, used by most modern advisors, is based on modern portfolio theory. However, what we know now is that the assumption of rationality underlying the theory is not valid: people are not rational in their decision making.
- Markowitz so much as said this when asked about modern portfolio theory and how it compared to behavioral financial advice. He said that, after all, modern portfolio theory was just a theory. It was the best thinking at the time, but it did not account for the fact that people are emotional decision makers.
The emerging BFA™ field recognizes that saving and investing behavior accounts for the lion's share (87%) of portfolio growth (the other 13% of portfolio growth is market timing, asset allocation, and investment selection) and equips advisors with a systematic, sophisticated, approach to help clients manage their emotions and their decision making and investing behavior.
Jim Maendel is a credentialed Behavioral Financial Advisor through Kaplan University, and believes that these tools and disciplines are critical to clients success as they help fill in the gaps in traditional financial planning advice.
- "Financial planning was a big advance 20 or 25 years ago. Behavioral financial advice is at least as big. It is that revolutionary". -Think2Perform