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Useful Behavioral Finance Information for CFPs®

Mid adult couple smiling while looking at female financial advisor at desk in office


The concepts of behavioral finance are applied increasingly in our world. Governments are using decision-making psychology to encourage behaviors like saving more for retirement. This type of psychology is also used by a wide range of businesses to help maximize their profits. Although plenty of behavioral interventions do work, others fall short of expectations or even backfire. Understanding what creates these differences is essential for CFPs® who want to provide the assistance clients need to make the right financial decisions:


The Role of Emotional Triggers


Both governments and businesses that use behavioral finance strategies have to overcome the challenge of getting people’s attention in a world that’s full of distractions. To cut through the noise technology is being developed using systems that trigger emotional responses.


One example of these types of triggers has been developed from the concept of loss aversion. The theory of loss aversion states that people react more strongly to the threat of a loss than the possibility of a gain.  Using this concept, app developers have found that  the average person doesn’t want to use something that solely tracks their failings without any positive reinforcement.


Another example arises from the realization that nudges become less effective over time. It’s standard practice for app developers to do extensive testing to figure out exactly what works best with users. But as many technologists have discovered, what’s fully optimized now may not be nearly as effective in a few years. Dealing with this issue is why more resources than ever are being put towards creating and delivering experiences that are highly personalized.


Using Behavioral Finance on a Big Scale


While behavioral finance is something that has a lot of appeal to smaller technology companies looking for a big opportunity, it’s on the radar of larger financial institutions as well. Designing more effective savings products, small-dollar loans, and automobile loans with lower rates are all things that established financial companies have enlisted help with from behavioral finance experts.


One interesting aspect of all the attention on this topic is the realization that this attention will eventually reduce the effectiveness of behavioral finance. While these practices currently have the ability to improve outcomes by ten to thirty percent, experts have stated that consumer suspicion is something that may eventually make it more difficult to achieve these results.


By taking the time to test out some of the apps and other types of technology being developed in the area of behavioral finance, CFPs® can gain some hands-on insights that they can pass along to clients.


Many Advisors Are Missing Out By Not Marketing to Millennials


Recent research shows that many trained financial advisors are missing a significant opportunity by not making it a priority to engage with potential clients that fall in the millennial demographic. The 3rd annual Advisor Anxiety Survey found that a full 56% of financial advisors are focused on this demographic less than other demographics or not at all.

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What Can a Postnuptial Agreement Accomplish?



When most people think of divorces, only bad things come to mind. The reason is that divorces are often very complicated and messy matters. Even when a divorce starts out on amicable terms, it’s always possible for proceedings to take a negative turn. Because there are so many negative issues associated with divorces, more people are turning to financial advisors for alternative solutions.


The most common suggestion that trained financial advisors bring up with clients who make this request is a postnuptial agreement. Although far more people have heard of divorces than postnuptial agreements, this document is a legal contract. The simplest definition of a postnuptial agreement is a contract that a couple signs after getting married. The purpose of this contract is to provide clarity about the financial rights and obligations of both spouses in the event of a death or divorce.


The Difference Between Prenuptial and Postnuptial Agreements


The biggest difference between these two types of agreements is that a postnuptial agreement is made when both parties have legal rights. Since prenuptial agreements are signed prior to a couple having any legal financial obligations to each other, they generally can’t provide the same level of certainty about financial matters.


How a Postnuptial Agreement Can Function As a Divorce Alternative


Financial troubles, mental illness, addiction and infidelity are the most common causes of marital distress. When one or more of these issues comes up, it can shake the entire foundation of a marriage. In the event that any of these problems do arise within a marriage, a postnuptial agreement can provide a way for one spouse to seek specific protective measures.


Instead of defaulting to a divorce, a postnuptial agreement can enable a spouse to secure financial protection in the form of assets being distributed. By taking this route, a married couple can then focus on resolving the actual problems of the marriage.


More Details About Postnuptial Agreements


In addition to serving as a possible alternative to divorce, this type of agreement can also be used a financial planning tool when a married couple receives an inheritance or enters a family business. When used in this type of situation, a postnuptial agreement can provide clarity on an issue that will then give both spouses ample peace of mind about the matter.


When certified financial planners discuss this type of agreement with clients, it’s important for them to bring up the terms that need to be present in order for the agreement to be enforceable. Those terms include both spouses entering into the agreement voluntarily, as well as the agreement resulting from full financial disclosures by both spouses.

What Can Financial Advisors Do to Assist Clients with Dementia?



One of the most difficult situations an advisor may find themselves in is needing to help a client who has dementia. Not only does helping a client with dementia require understanding and compassion, but it’s also important for advisors to be aware of the legal issues associated with this condition.


The Most Common Warning Signs of Dementia


In order to provide the right type of help to clients with this condition, financial advisors need to be able to recognize it. There are three warning signs that are strong indicators of dementia. The first is extended spells of uncertainty during a conversation. The second is a sudden and significant change in how a client approaches their money management. And the third is noticeable forgetfulness that occurs on multiple occasions.


If these signs are present in a client, the best way for trained financial advisors to react is by providing a gentle but firm assessment to see a doctor. Although the specific issue of dementia may not need to be brought up, it’s important for the client to clearly understand that something is not the way it should be.


Financial Planning Advice for Clients with Dementia


When an individual is struggling with this condition, it can make them susceptible to people who want to get their money. That’s why it’s very important for certified financial planners to not rush into a sudden request to gift someone who hasn’t been talked about in the past.


In addition to watching out for signs of a client being ripped off, it’s important for advisors to be proactive in preparing for a client’s condition to worsen. From trusts to wills to estate plans, the sooner an advisor can get everything in order, the better position their client will be in.


Understanding the Liability Associated with Dementia


There’s no question that a financial advisor should take steps to help protect a client who is showing warning signs of dementia. But it’s also important for an advisor to be aware of their own liability in this kind of situation. The biggest source of liability is if any material action is taken on the client’s behalf without specific authorization.


Because dementia can add a layer of complexity to financial planning issues, it’s often in the best interest of both the advisor and client for the advisor to speak with the client’s designated heirs or relatives about the possibility of dementia. If one of those individuals does confirm the presence of this condition, the necessary steps can be put into motion without delay.


While dementia is a very unfortunate condition, financial planning professionals who are proactive about preparation can play a major role in both helping and protecting a client with this condition.