What is the value of behavioral coaching? The frequently cited “Advisor’s Alpha” study by Vanguard estimates that the annual financial value of behavioral coaching for investors is 150 basis points, based on observed investor behavior with target-date funds. In a recent Journal of Financial Planning article, I take a deeper dive into the dollars and cents of behavioral coaching—and how it can help investors succeed. Here, we’ll jump straight into the results and what they mean.
Why Do We Need Behavioral Coaching?
One of the benefits is obvious: It can mitigate panic during market downturns. Advisors can help clients avoid selling at the wrong time and missing a subsequent upswing. Beyond the obvious answer, behavioral tools to help investors avoid panic are needed because the industry’s current approach of matching investors to investments is well-intentioned but incomplete. We are putting two competing demands on the investing process by trying to select investments that will both a) deliver the returns that investors need to reach their goals and b) avoid volatility that might lead them to abandon their investment plan.