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Personality and Finance

Learn how personality is defined and the different personality types you may encounter among your financial advisory's clients.

Justin A. Reckers and Robert A. Simon, 04/19/2012

In our next two columns, we are going to dive into personality--including personality types and when personality styles become problematic and maladaptive. We will relate how you, the advisor, might need to take different approaches for clients with different personality styles, including how you establish rapport and develop relationships with your clients. We'll cover what personality might indicate about the client's risk tolerance and needs with regard to investments and planning, and what kinds of cognitive distortions might be found in particular personality styles.

Personality is best thought of as an individual's consistent, enduring, predictable manner of behaving, experiencing, and interacting with others and with the world. For example, some people are fundamentally emotional in their orientation, whereas others are more intellectual/cognitive. Some people are organized in their orientation, whereas others are disorganized or even chaotic.

There are numerous conceptual systems for understanding personality. Often, how personality is classified depends on the reason for the classification. For example, in the business world, the Myers-Briggs Type Indicator is a commonly used test that classifies personality types. This test, which many believe is particularly helpful in constructing work teams and in understanding how employees interact within the work environment, evolved from Carl Jung's theory of types. Myers-Briggs classifies individuals along four continua:

--Extraversion v. Introversion
--Sensing v. Intuition
--Thinking v. Feeling
--Judging v. Perceiving

The Five Factor Model of personality developed by Costa & McCrae emphasizes the following personality traits (factors):

--Openness to Experience (inventive/curious v. consistent/cautious)
--Conscientiousness (efficient/organized v. easygoing/careless)
--Extraversion (outgoing/energetic v. solitary/reserved)
--Agreeableness (friendly/compassionate v. cold/unkind)
--Neuroticism (sensitive/nervous v. secure/confident)

In systems such as the Myers-Briggs or the Five Factor Model, individuals are characterized on each of the dimensions, resulting in a multifaceted conceptualization of their personality. In such systems, there is no such thing as a "normal" or "ideal" personality. Instead, personality is seen as a consistent set of behaviors and attitudes.

Further, each personality style or type brings with it a set of strengths and a set of weaknesses. For example, a person who is inventive/careless/reserved might be a creative type who thinks outside the box but may also be shy and hesitant. Such an individual might be well suited to work in a creative environment where interactions with teams of people are not frequently necessary.

On the other hand, an individual who is consistent/compassionate/sensitive might tend to rely on structure, strive to please others, and seek the approval of others. Such an individual might not be suited to take on important leadership roles in the workplace but can be called upon to support and assist co-workers, especially when they are struggling.

As you can see, both of these hypothetical personality types, while very different, have positive aspects that serve the person well in different types of situations.

When personality styles and tendencies become rigid, inflexible, unable to adapt to the demands of the situation or the task at hand, the personality style moves into the realm of a personality disorder. The Diagnostic and Statistical Manual of Mental Disorders–IV TR (DSM-IV TR) is the manual used by mental health professionals to diagnose individuals whose personality traits have become maladaptive. Within the DSM-IV TR, there are three clusters of Personality Disorders:

Cluster A: Odd or Eccentric Behaviors

--Schizoid Personality Disorder
--Paranoid Personality Disorder
--Schizotypal Personality Disorder

Cluster B: Dramatic, Emotional or Erratic Behaviors

--Antisocial Personality Disorder
--Borderline Personality Disorder
--Narcissistic Personality Disorder
--Histrionic Personality Disorder

Cluster C: Anxious, Fearful Behaviors

--Avoidant Personality Disorder
--Dependent Personality Disorder
--Obsessive-Compulsive Personality Disorder

Again, a personality disorder is observed when someone's personality style is so extreme, fixed, or rigid as to cause maladaptive behaviors. An individual who is very orderly, organized, and neat and who prefers a life that is predictable and routinized may have an obsessive-compulsive personality style. This individual can thrive in structured environments, will reliably keep on task and stick to the timeline when it comes to completing projects, and is likely to be the one who reminds others of project deadlines and who can bring a predictable structure to critical project requirements. These traits and behaviors are positive and adaptive. When something unexpected happens, this individual may be temporarily sidetracked but will use his or her personality traits to accommodate the unexpected events and will get back on task.

However, individuals with an obsessive-compulsive personality disorder have such an extreme need for order and predictability that it gets in the way of creativity, impairs their ability to take in and consider alternative points of view, and if something unexpected happens, they may fall apart and be unable to readily navigate hurdles and get themselves back on task.

In our next article, we will apply personality types and styles to the needs of your clients. For instance, consider this: A client whose orientation is primarily within Cluster C above is likely to approach planning from a cautious, fear-based point of view. You can assist such clients by giving them information, patiently and methodically answering their questions, and acknowledging that their primary financial-planning concern is preserving their asset base by minimizing losses.

On the other hand, an individual whose orientation is primarily from Cluster B will be more emotion driven, will utilize linear/rational information to a lesser degree, and may approach investing in a way that feels more exciting and fun.

Justin A. Reckers, CFP, CDFA, AIF is director of financial planning at Pacific Wealth Management www.pacwealth.com and managing director of Pacific Divorce Management, LLC www.pacdivorce.com, in San Diego.

Robert A. Simon, Ph.D. www.dr-simon.com is a forensic psychologist, trial consultant, expert witness, and alternative dispute resolution specialist based in Del Mar, Calif.

The author is a freelance contributor to MorningstarAdvisor.com. The views expressed in this article may or may not reflect the views of Morningstar.

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