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Investor Sponsor Content Knowing your goals and avoiding bias is key to long-term investment plan success

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When it comes to investing, the biggest hurdle many people face is themselves. Emotions can lead to risky actions such as panic selling in a market downturn, or over-investment in a “hot stock” or sector, resulting in losses that could derail an investors financial plan.

“The impact of a loss can make it difficult for investors to stick with their long-term strategy,” says Chris Turchansky, president of ATB Wealth and EVP at ATB Financial.

ATB Wealth is the wealth management division of ATB Financial. The team consists of the experts, products and services formerly offered by ATB Investor Services and Alberta Private Client.

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Most investors are guilty, at some point, of investing with a behavioural bias, such as emotion or ego. Understanding these biases exist, and managing them, helps to keep investors on track.

“Understanding the impact on the behavioural side of investing is critical in helping investors reach their financial goals,” says Mr. Turchansky.

Know your financial values

ATB recently partnered with leading behavioural finance expert, Dr. Daniel Crosby, to develop tools that help investors discover what biases may be affecting their financial decisions.

To start, ATB and Mr. Crosby came up with five “financial values” that drive most household investment decisions:

  1. Communication: Are you direct or indirect when it comes to discussing money? How open are you to discussing how finance plays a role in investment decisions?
  2. Apprehension: How much do you worry about money? Your level of worry often determines how risky your investments are.
  3. Function: Do you believe your money is meant to enjoy today or secure tomorrow? Not an easy answer, but helps to determine how much to save or spend.
  4. Orientation: Is this money for you, or should it be used for the extended family or community? Do you want to contribute to a local charity or pay for a parent’s retirement home?
  5. Importance: How important is money to your sense of self? Do you need to drive a nice car and live in a big house, or does a bicycle and smaller apartment better suit your lifestyle?

“None of these answers are right or wrong,” says Mr. Crosby, who is also the chief behavioural officer at asset management firm Brinker Capital and author of books such The Laws of Wealth and The Behavioral Investor. Instead, Mr. Crosby says the results help advisors better understand their clients and their approach to investing.

From there, the five financial values were used to develop “Money 20,” a 20-question assessment ATB Wealth investors are asked to answer - with the help of their advisor - to inform their financial plan. “Money 20” also helps advisors identify behavioural biases that might cause clients to veer from their desired financial path.

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Four main behavioural biases

While there are dozens of behavioural biases that can affect investors, Mr. Crosby’s work narrows it down to four including; ego, emotion, attention and conservatism.

Ego is often defined as overconfidence in an investment or believing you can beat the market, while emotion is panic selling or euphoric buying of an investment.

“Attention is not focusing enough on the investing realities”, says Mr. Crosby. “In financial markets, we worry about the next big crash and don’t worry about factors such as fees, which can also have a long-term impact on investments,” he says.

Conservatism is investing too much in a certain sector or market. An example is “home bias” in Canada, where many investors have most of their money in Canadian stocks or have overinvested in their own company’s stock.

“Investors can recognize and try to avoid being influenced by these behavioural biases by working with a financial advisor who builds a portfolio that takes into consideration both their emotional tendencies and risk preferences,” Mr. Crosby says. Advisors also provide “just in time” financial advice.

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“Even if you know the right thing to do, there will be times when, despite everything you know and believe, a moment of panic or strong emotion will lead you to make a poor decision,” Mr. Crosby says. “You need someone to talk you out of it in real time. A good advisor educates clients and holds their hand along the journey.”

The evolving role of advisors

“The growing recognition of behavioural biases in investing has changed the way advisors work with clients,” says Mr. Turchansky.

“We’ve seen an evolution in the role of advisors from picking individual stocks and trying to outperform the market, to really understanding their clients’ goals and focusing on being a behavioural coach,” says Mr. Turchansky.

At ATB, advisors also work with coaches to help them identify their own biases which, in turn, enables them to help clients make better financial decisions.

Mr. Turchansky says ATB advisors are now often described as “co-pilots” or “Sherpas” in helping investors reach their financial goals.

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“Investors should be open about their goals and dreams, as well as their relationship with money,” says Mr. Turchansky. “The more open they are with their advisors, the more successful they will be as investors.”


Advertising feature produced by Globe Content Studio. The Globe’s editorial department was not involved.

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