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Dealing With 'The Preserver' Client

Preservers place a great deal of emphasis on financial security and preserving wealth rather than taking the necessary risks to grow it.

Michael M. Pompian, 09/19/2013

This month's article is the ninth in a series called "Building Better Client Relationships by Understanding Investor Types." This series is intended to help advisors create great working relationships with their clients by taking a step back and understanding the type of person they are dealing with (from a financial perspective).

Individuals are different in the way they process information, vary in the way they behave when faced with a financial decision, and have different risk preferences, so it is essential that advisors interact with each client effectively. This often means that you must change the way you speak to different types of clients even though your advice may be similar across your client base.

Some advisors fail in their tasks not because they don't have technical knowledge of the markets, understand the strategies of investment managers, or have systems that can deliver the best methods of portfolio construction, but rather because they don't understand what is truly important to the client and how to communicate and interact in a way that is meaningful and effective.

As you know by now, I have dedicated a substantial amount of time promoting the benefits of behavioral finance research and making it accessible to large numbers of financial advisors. In my latest book, "Behavioral Finance and Investor Types," my primary objective was to simplify the practical application of behavioral finance by boiling down many of the complexities involved in diagnosing and treating behavioral biases into the simple concept of investor types, which I refer to as "behavioral investor types," or BITs. BITs are defined in large measure by the biases themselves and are categorized in a way that makes intuitive sense and can be easily understood.

In the last article, I explained improvements and updates to the BITs theory. Similar to the psychological typing theories that I covered in earlier articles, BITs are models for various types of investors. There are four behavioral investor types: the Preserver, the Follower, the Independent, and the Accumulator. Each of these types will be reviewed in detail starting with today's article, which will cover the Preserver BIT.

Preserver Behavioral Investor Type
A Preserver BIT describes an investor who places a great deal of emphasis on financial security and preserving wealth rather than taking risks to grow wealth. Such investors are guardians of their assets and take losses very seriously. Preservers are often deliberate in their decisions and sometimes have difficulty taking action with their investments, out of concern that they may make the wrong decision. They instead may prefer to avoid risk and stick to the status quo.

Preservers often obsess over short-term performance (in both up and down markets--but mostly down markets) and losses, and they also tend to worry about losing what they had previously gained. This behavior is consistent with how Preservers have approached their work and personal lives--in a deliberate and cautious way.

It is not uncommon to find older investors behaving in a way consistent with the Preserver BIT. This is natural. As we age, the certainty of cash flow becomes paramount. As such, it is common to find Preservers focusing their wealth on taking care of their family members and future generations, especially funding life-enhancing experiences such as education and home buying. Because the focus is on financial security, Preserver biases tend to be dominated by emotion--relating to how they feel--rather than focusing on cognitive aspects--how they think.

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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