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Advising the 'Accumulator' Client

The Accumulator behavioral investor type can be among the most difficult to advise.

Michael M. Pompian, 12/19/2013

This month's article is the 12th 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.

There are four behavioral investor types: the Preserver, the Follower, the Independent, andthe Accumulator. In the last article, I reviewed the Independent BIT. In this article I will review the Accumulator BIT.

Accumulator Behavioral Investor Type
The Accumulator BIT describes investors who are interested in accumulating wealth and are confident they can do so. These clients have typically been successful in some business pursuit and believe in themselves and their ability to be successful investors. As such, they often like to adjust their portfolio allocations and holdings to market conditions and may not wish to follow a structured plan. Moreover, they want to influence decision-making or even control the decision-making process, which potentially can diminish an advisor's role.

At their core, Accumulators are risk takers and firmly believe that whatever path they choose is the correct one. Unlike Preservers, they are in the race to win--and win big. Unlike Followers, they rely on themselves and want to be the ones steering the ship. And unlike Independents, they usually dig down to the details rather than forge a course with half the information that they need.

Unfortunately, some Accumulators are susceptible to biases that can limit their investment success. For example, Accumulators may be too confident in their abilities. Because they are successful in business or other pursuits, why shouldn't they be successful investors? And overconfidence sometimes leads them to think they can control the outcome of investing, despite the fact that it is full of unknown risks.

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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