Identify, Deactivate, Redirect – Overcoming Behavioral Biases with CPWA Certification

There may be only one task more reliably complex and challenging than navigating the modern financial markets: navigating the emotional psyche of your clients. Expertly understanding the behavioral tendencies, mental heuristics, and cognitive and emotional biases your clients are likely to bring to the advisor-client relationship is a crucial capacity for financial professionals. The Certified Private Wealth Advisor® (CPWA®) certification program, offered by Investment & Wealth Institute, provides advanced training to both understand your client’s investing mentality and to expertly coach them towards the best possible outcomes.

High-net-worth individuals are just as susceptible to the litany of well-documented biases prevalent in managing wealth. Your best clients and prospects share the exact same fundamental vulnerability: they are human beings. Our species’ evolutionary heritage compels us to make decisions based on emotions. This is natural, and in some contexts, highly beneficial. Yet, it can also be extremely subversive to long-term financial success. This is where, in the work necessary to preserve and optimize the wealth of high-net-worth clients, the role of an elite financial advisor becomes critical.

Towards a Behaviorally Adjusted Portfolio

Fortunately, after taking off in the late 1970’s, the discipline of behavioral finance has now identified and comprehensively explained numerous biases that an advisor is likely to encounter. In turn, this knowledge has become a foundational component of advanced educational training programs for wealth management and financial advisory professionals. Emotional effects such as loss aversion, recency bias, and confirmation bias are widely appreciated as roadblocks and obstacles by seasoned financial service professionals, and the list of other such behavioral roadblocks that advisors may need to address with their clients goes on and on.

But to truly stand out from the crowd, an exceptional advisor must go beyond a pedestrian understanding of these behavioral tendencies. The ability to diagnose the unique behavioral patterns and biases of each client is critical. An advisor must be able to skillfully parlay their diagnostic conclusions into stronger, more durable, and longer-lasting client relationships. The way to accomplish this is to customize and align advisory conversations, recommendations, and guidance with each client’s unique psychological profile. Therefore, advisors must know how to execute advanced communication strategies to win the necessary agreement from the client. These advanced understandings will ensure the recommendations made by the advisor are enacted, helping to overcome delicate mental roadblocks and obstacles to implementation the client may initially harbor.

From Diagnosis to Dialog

The CPWA certification is an advanced education and voluntary standard for advisors who serve high-net-worth and high-income clients. Unlike credentials that focus exclusively on the technical mechanisms of investing or financial planning, the CPWA program takes a holistic and multidisciplinary wealth management approach. It purposefully incorporates multiple dimensions of human dynamics into its learning objectives, such as professional ethics and family relationships. CPWA-certified professionals are trained to identify and explain the major elements of behavioral finance theory, including the relevant neurological research. Critically, they must learn to master and practically apply their knowledge when providing real-world services to their clients.

The CPWA® program teaches communication strategies designed to promote a sense of collaboration and partnership with each client. It is important for advisors to ensure clients retain their sense of control, even while steering them towards decisions that may be at odds with their emotional state of mind. For example, perhaps a client’s loss aversion bias is presenting as a desperate desire to avoid realizing an investment loss. Rather than challenging this emotional tumult with facts, figures, and direct persuasion, an advisor could initiate a needs-based planning exercise. By separating assets into short-term and long-term categories and then demonstrating how their short-term needs are fully covered despite the loss, the advisor can help the client feel more secure — and more inclined to move on confidently and optimistically from the loss. Mastering a repertoire of these sorts of nuanced, situation-specific communication tools is what distinguishes a great advisor from a good advisor.

Moreover, wielding these advanced competencies does much more than just help ease the client’s peace of mind. Studies show that incorporating advanced behavioral coaching into the spectrum of advice and management services offered by advisors measurably improves financial outcomes, yielding higher net returns over the long run.

The Self-Aware Advisor

Clients are not the only ones with ingrained tendencies towards holding biases. Both financial advisors and wealth managers have natural predilections towards the same emotional maladies that clients do. This means prior to taking stock of a client’s investment psyche, high-functioning financial professionals must thoroughly assess — and work to defray — their own biases.

One powerful strategy in this self-discovery effort is a purposeful cultivation of mindfulness — focusing intentionally, but without judgement, on one’s own thoughts and emotions. Such personal awareness can help advisors recognize when they might be accidentally succumbing to biases, providing the opportunity to self-correct before their professional decisions are negatively impacted. One surprisingly simple but powerful practice in this regard is keeping a journal. By documenting their personal reactions to financial events, advisors can better identify and mitigate any recurring biases they may be prone to suffer. A powerful tool is the development of a prescribed investment philosophy that considers both client and advisor biases, including clearly defined mandates, constraints, and risk metrics.

The CPWA certification program fully equips advisors with the expertise to identify and mitigate behavioral biases in themselves and their clients. Beyond this, the program provides comprehensive, multidisciplinary education, featuring a panorama of sophisticated learning objectives. The goal is to synergize advanced technical knowledge, mindful awareness, and expert communication skills. The result is an elite financial professional who is vigilant against their own biases and capable of identifying and mitigating the biases each client brings to the relationship. From advanced tax planning and portfolio management to complex estate and legacy planning, the CPWA curriculum is meticulously designed to address the diverse and sophisticated needs of high-net-worth and high-income clients.

Further Professional Development: Applied Behavioral Finance

If CPWA certification is not currently your goal, but you are looking for tailored and targeted expertise in managing client behaviors and bias, the Investments & Wealth Institute offers a highly-regarded Certificate Program: Applied Behavioral Finance (now CFP CE approved). This program gives advisors the tools to understand and professionally navigate their clients' roller coaster of emotions and unspoken biases toward investing — as well as their own. Learn from leading experts through engaging video lectures, case studies, and extensive readings. Gain practical advice from Carl Richards, renowned for his insights into behavioral finance. Upon completion, participants will earn 15 CE credits applicable to CIMA®, CPWA®, RMA®, and CFP® certifications.