Behavioral Coaching, Your Practice, and Your Paycheck

The Scenario

There’s an old story about the future of air travel; the pilot’s job is fully computer-controlled from before takeoff to after landing yet, as the story goes, every flight has a human pilot and a dog in the cockpit. The dog’s job? Bite the pilot if they touch any of the controls. Here’s the author’s point—financial advisors who fail to communicate their value to clients may run the risk of being compared to computer-driven algorithms such as Robo advisors. How have you identified and communicated your value to clients?

Communicate Your Value to Clients!

Competing for new clients and retaining existing clients depends in large measure on your client's perception of your value-added—that’s hardly a secret. But, how clearly have you identified and communicated your value? Take the following exercise to get a better idea about the scope of your services and their value to clients:

This exercise covers the basics. But what about the modern-day elephant in the room—the new competitive landscape?

The New Competitive Landscape

Depending on your answers, the previous exercise might have been a relatively simple way to illustrate a growing trend in the industry—the commoditization of investment management. But, make no mistake, the core of what our industry has delivered (and called investment advice) for generations is under pressure.

For example, just one of the top ten Robo-supported online advisory services1 has amassed over $150b in AUM during the last six years. The annual cost is just 30bp for the service.

Here’s one potent weapon to emphatically differentiate a financial advisor’s value from a set of computer algorithms—Behavioral Coaching.

Behavioral Coaching—Your Potent Value Add

Meir Statman, a noted professor, author, and researcher focused on the arena of Behavioral Finance [Coaching], stated in a presentation that advisors should think of themselves in the same way that physicians do.

“Follow the pattern of the physician: Ask, listen, diagnose, educate, and treat. Financial advisors who act as financial physicians combine the science of finance and securities with the ability to empathize with and guide clients — thinking not about risk and return but about investors’ fears, aspirations, and the errors they are likely to make. Financial advisors promote wealth and well-being just as physicians promote health and well-being.”

As an advisor, if you can’t influence the investor’s behavior, the odds that you can make it up through superior manager selection or asset allocation are remote. Multiple studies are identifying behavioral coaching as one of the top client perceptions of an advisor’s value added. As but one example, coaching the client to systematically buy low and sell high is the easiest and most sustainable path to outperformance.

The Potency of Behavioral Coaching

Why do many clients need your behavioral coaching simply to buy low and sell high? An entire textbook could be written in answer to that question but one reason can be laid squarely at the feet of panic selling. Your clients probably know intellectually that bull markets, bear markets, recessions, and expansions are part of the normal economic cycle. We have performance data over the last 100+ years that bears witness to this repeating cycle. Stock prices rise and fall, at times quickly and sharply, based in large measure on investors’ expectations and emotions during these cycles.

For example, the Dow Jones Industrial Average plunged by over 35% during just one month in the Covid Crash of early 2020. US investors saw $4 trillion in wealth evaporate in just six trading days. Investors who panic-sold near the bottom of the crash and went to the “safety” of cash missed out on a meteoric recovery beginning in the last three quarters of 2020. The admonition that “you have to be present to win” applies emphatically to the stock market.

Well-coached clients tended to hold onto their investments (some even used the 35% plunge to buy great stocks “on sale”) and saw the value of their portfolios leap back in short order. Yet, why do otherwise rational, intelligent investors panic sell in such times? Panic selling springs not from our clients’ intellect, but from overwhelming emotions rooted deeply in our ancient survival instincts. If that’s the bad news, here’s the great news—trained financial advisors can coach their clients through those emotional behaviors to make wiser long-term investment decisions.

The Potency of Behavioral Coaching

We have developed a comprehensive training resource to guide financial advisors in behavioral coaching. Click here to explore those resources. Your compensation, if not the growth of your practice, may depend upon it.


The information presented herein is provided purely for educational purposes and to raise awareness of these issues; it is not meant to provide and should not be used to provide investment, income tax, or financial planning advice of any kind. There are variations, alternatives, and exceptions to this material that could not be covered within the scope of this blog.

1 The Vanguard Advisory Services program uses a combination of remote human advice and computer-driven asset allocation and fund selection.