Preliminary Analysis on Behavioral Finance (First Draft)
INTRODUCTION
As a current junior studying finance at Roger Williams University and minoring in public and professional writing, I have experienced many different discourse communities and experienced many different communication techniques specific in targeting a particular audience. I have written for business professionals, local organizations, and for public figures such as the president of the United States; therefore, I have acquired some experience in connecting with diverse audiences.
In my current writing class, Advanced Writing for the Sciences, I have been given the opportunity to observe and practice a foreign writing style other than what I am used to; scientific rhetoric. A definition of scientific rhetoric that I believe effectively conveys its meaning can be summarized as:
“Rhetoric that is best known as a discipline that studies the means and ends of persuasion. Meanwhile, science is typically seen as the discovery and recording of knowledge about the natural world. A key contention of rhetoric of science is that the practice of science is, to varying degrees, persuasive” (“Wikipedia: Rhetoric of Science”, 2018).
One can say that scientific rhetoric is a technique to convince/ persuade “to varying degrees” someone of a scientific theory. As a finance major almost entirely consumed by the business world, some may question the relevance of studying scientific rhetoric and if its’ techniques apply to finance; however, it is more important than many may think. Rhetoric applies to all types of writing and its respective audiences, so as a finance major I interpreted this definition as “how finance professionals effectively and efficiently communicate financial recommendations to their clients (audience)”.
As stated above, scientific rhetoric does not appear in finance as easily as it would in say marine biology or organic chemistry; however, general rhetoric does appear in finance. Pathos, logos, and ethos are all ingrained in how we communicate with one another, especially when persuading a certain audience to act on your professional recommendations. Furthermore, when I was informed that I was to unearth this writing technique in my field of study, only one subject came to mind; behavioral finance. Behavioral finance is defined as “a relatively new field that seeks to combine behavioral and cognitive psychological theory with conventional economics and finance to provide explanations for why people make irrational financial decisions” (Investopedia: Behavioral Finance, 2018). I decided upon behavioral finance as my topic to analyze because I have taken previous finance courses that have covered behavioral finance and its importance to reaching an array of audiences, and this topic seemed to parallel the requirements of this courses preliminary analysis assignment. In the following analysis, I decipher behavioral finance by illuminating rhetoric in my field of study and the addressing the importance of behavioral finance to understand how to effectively communicate with all audiences.
RHETORIC IN FINANCE
In the world of finance, professionals are enclosed in a discourse community where knowledge and information seem to flow between colleagues in almost a secret code where only they understand what is happening, and everyone outside their discourse community is clueless. Using financial terminology such as “Beta”, “Sharpe Ratio”, “PE Ratio”, etc. to give clients account information and/ or offer recommendations means little to nothing to them unless their advisors uses effective communication techniques; this is where rhetoric makes its appearance in finance. Here, the financial advisor has to use rhetorical techniques and “dumb down” information in a way that anyone can understand. Besides, the goal of a financial advisor is to achieve the goals of their clients (in most cases maximizing portfolio returns), and the only way of achieving these goals is through flawless communication transferred between advisor and client.
As previously stated, the majority of financial terminology and information discussed in this discourse community is foreign to the client and has no significant meaning to the client without explanation. In order to well communicate to various audiences, one has to understand behavioral finance and apply its rhetorical methods. Here, scientific rhetoric becomes relevant to my field of study because. One has to have the ability to identify who is their exact audience and effectively communicate with them to convince/ persuade whoever they may be to adopt their financial recommendations.
Through an interview with a financial professional who knows all to well of the credited and acknowledged Certified Financial Planners (CFP’s), Chartered Financial Analyst’s (CFA’s), Certified Credit Professional’s (CCP’s) requirements; I have acquired a further understanding on how one has to shift their communication style to reach their clients. This interview has revealed various recommendations on how to translate the knowledge from their minds (finance professionals), to those of everyday people. What I can say before I divulge into my first-person research is that, as previously stated, most financial advisors have to “dumb-down” their explanations of what is happening in the market and “dumb-down” their reasoning’s behind their recommendations in order for a client to understand and process what is being fed to them. In addition to interviews, I have cross examined credible texts and websites such as Forbes Magazine, Bloomberg L.P, Market Watch, and Investopedia.com to not only grasp further knowledge in the financial discourse community, but to compare that information with what I have gathered through interviews to further credit their claims.
FINANCIAL COMMUNICATION ANALYSIS
To begin, I can go on and on about how important effective communicate is to all types of audiences, not only in finance but all around the world; however, it is common knowledge that effective communication is vital to anyone’s success. For example, a car salesman working at any car dealership’s goal is to persuade and convince a client that walks through the doors to purchase a car. Though their overall goal may be the same for any client (to sell them a car), their approach will differ, and the success of that approach depends on one’s abilities to effectively communicate. Effective communication can be defined as “verbal speech or other methods of relaying information that get a point across” (“Your Dictionary”, 2018), and regarding the above example styles of communication will differ depending on the type of client walking through the door. The following section of this analysis will analyze discussions between myself and one finance professor at Roger Williams University’s Mario J. Gabelli School of Business; Michael R. Melton, Ph.D.
Some background history on my relationship with this professor and why I decided to speak with them and utilize their knowledge to augment my own on the topic of financial communication, specifically on behavioral finance, is as follows. Michael Melton is Roger William University’s director of the Center for Advanced Financial Education (CAFÉ) program and happens to be my academic advisor. Through interacting with him each year via meetings and taking his courses such as Principle of Investments, I came to the realization that he is an expert in this industry with decades of knowledge available at my fingertips. I sought out Dr. Melton and asked for his feedback and recommendations on the following two questions:
Feedback for question (1): When working with a prospective client they are most likely going to decide in the first five minutes whether or not they want to work with you. It has little to do with what you know about the industry because most finance professionals are all certified under the same criteria; thus, it comes down to how effective you are at communication and one’s ability to get to know that client and their goals. I was given the following seven mainstream questions to ask each prospect to understand their background and purpose for working with you (the professional):
These replies gave me an overall understanding on the kinds of questions a financial professional has to ask in order to do their job and to work in a way that is specific to each and every client, and is personalized to achieving whatever their goals may be (e.g. retirement, school, dream home, etc.).
Finally, the response to my question of “How often do you have to change your approach when working with a new client to effectively communicate with them to reach their objectives?”, was more or less what I expected the answer to be. I was informed that a financial advisor has to almost change their approach for every client they have; that no two clients are alike and the way one may connect with a brain surgeon is going to be different than how they communicate with a stay-at-home mother. You have to have situational awareness as well and be able to put yourself in their shoes and see how they process information and then adjust your professional approach/ communication techniques to achieve their objective. For example, instead of using terminology such as “Alpha” to represent “the active return on an investment, gauges the performance of an investment against a market index or benchmark which is considered to represent the market’s movement as a whole”. An advisor may dumb the terminology down to “a way to measure your portfolios performance when taking into account the levels of risk your stocks poses”.
CONCLUSION
Since identifying and analyzing scientific in my field of study is as easy as others may have been, this analysis has been a bit of a challenge. Though, with it being a challenge, it has forced myself to look at finance through multiple perspective lenses. This newly obtained perspective combined with analyzing feedback from finance professionals has allowed myself to augment my knowledge in finance.
REFERENCES
Behavioral Finance. (2015, July 25). Retrieved March 26, 2018, from https://www.investopedia.com/terms/b/behavioralfinance.asp
Byrne, A., & Brooks, M. (2008). Behavioral Finacne: Theories and Evidence. Retrieved February 29, 2018, from https://www.cfapubs.org/doi/pdf/10.2470/rflr.v3.n1.1
Effective communication. (n.d.). Retrieved April 05, 2018, from http://www.yourdictionary.com/effective-communication
As a current junior studying finance at Roger Williams University and minoring in public and professional writing, I have experienced many different discourse communities and experienced many different communication techniques specific in targeting a particular audience. I have written for business professionals, local organizations, and for public figures such as the president of the United States; therefore, I have acquired some experience in connecting with diverse audiences.
In my current writing class, Advanced Writing for the Sciences, I have been given the opportunity to observe and practice a foreign writing style other than what I am used to; scientific rhetoric. A definition of scientific rhetoric that I believe effectively conveys its meaning can be summarized as:
“Rhetoric that is best known as a discipline that studies the means and ends of persuasion. Meanwhile, science is typically seen as the discovery and recording of knowledge about the natural world. A key contention of rhetoric of science is that the practice of science is, to varying degrees, persuasive” (“Wikipedia: Rhetoric of Science”, 2018).
One can say that scientific rhetoric is a technique to convince/ persuade “to varying degrees” someone of a scientific theory. As a finance major almost entirely consumed by the business world, some may question the relevance of studying scientific rhetoric and if its’ techniques apply to finance; however, it is more important than many may think. Rhetoric applies to all types of writing and its respective audiences, so as a finance major I interpreted this definition as “how finance professionals effectively and efficiently communicate financial recommendations to their clients (audience)”.
As stated above, scientific rhetoric does not appear in finance as easily as it would in say marine biology or organic chemistry; however, general rhetoric does appear in finance. Pathos, logos, and ethos are all ingrained in how we communicate with one another, especially when persuading a certain audience to act on your professional recommendations. Furthermore, when I was informed that I was to unearth this writing technique in my field of study, only one subject came to mind; behavioral finance. Behavioral finance is defined as “a relatively new field that seeks to combine behavioral and cognitive psychological theory with conventional economics and finance to provide explanations for why people make irrational financial decisions” (Investopedia: Behavioral Finance, 2018). I decided upon behavioral finance as my topic to analyze because I have taken previous finance courses that have covered behavioral finance and its importance to reaching an array of audiences, and this topic seemed to parallel the requirements of this courses preliminary analysis assignment. In the following analysis, I decipher behavioral finance by illuminating rhetoric in my field of study and the addressing the importance of behavioral finance to understand how to effectively communicate with all audiences.
RHETORIC IN FINANCE
In the world of finance, professionals are enclosed in a discourse community where knowledge and information seem to flow between colleagues in almost a secret code where only they understand what is happening, and everyone outside their discourse community is clueless. Using financial terminology such as “Beta”, “Sharpe Ratio”, “PE Ratio”, etc. to give clients account information and/ or offer recommendations means little to nothing to them unless their advisors uses effective communication techniques; this is where rhetoric makes its appearance in finance. Here, the financial advisor has to use rhetorical techniques and “dumb down” information in a way that anyone can understand. Besides, the goal of a financial advisor is to achieve the goals of their clients (in most cases maximizing portfolio returns), and the only way of achieving these goals is through flawless communication transferred between advisor and client.
As previously stated, the majority of financial terminology and information discussed in this discourse community is foreign to the client and has no significant meaning to the client without explanation. In order to well communicate to various audiences, one has to understand behavioral finance and apply its rhetorical methods. Here, scientific rhetoric becomes relevant to my field of study because. One has to have the ability to identify who is their exact audience and effectively communicate with them to convince/ persuade whoever they may be to adopt their financial recommendations.
Through an interview with a financial professional who knows all to well of the credited and acknowledged Certified Financial Planners (CFP’s), Chartered Financial Analyst’s (CFA’s), Certified Credit Professional’s (CCP’s) requirements; I have acquired a further understanding on how one has to shift their communication style to reach their clients. This interview has revealed various recommendations on how to translate the knowledge from their minds (finance professionals), to those of everyday people. What I can say before I divulge into my first-person research is that, as previously stated, most financial advisors have to “dumb-down” their explanations of what is happening in the market and “dumb-down” their reasoning’s behind their recommendations in order for a client to understand and process what is being fed to them. In addition to interviews, I have cross examined credible texts and websites such as Forbes Magazine, Bloomberg L.P, Market Watch, and Investopedia.com to not only grasp further knowledge in the financial discourse community, but to compare that information with what I have gathered through interviews to further credit their claims.
FINANCIAL COMMUNICATION ANALYSIS
To begin, I can go on and on about how important effective communicate is to all types of audiences, not only in finance but all around the world; however, it is common knowledge that effective communication is vital to anyone’s success. For example, a car salesman working at any car dealership’s goal is to persuade and convince a client that walks through the doors to purchase a car. Though their overall goal may be the same for any client (to sell them a car), their approach will differ, and the success of that approach depends on one’s abilities to effectively communicate. Effective communication can be defined as “verbal speech or other methods of relaying information that get a point across” (“Your Dictionary”, 2018), and regarding the above example styles of communication will differ depending on the type of client walking through the door. The following section of this analysis will analyze discussions between myself and one finance professor at Roger Williams University’s Mario J. Gabelli School of Business; Michael R. Melton, Ph.D.
Some background history on my relationship with this professor and why I decided to speak with them and utilize their knowledge to augment my own on the topic of financial communication, specifically on behavioral finance, is as follows. Michael Melton is Roger William University’s director of the Center for Advanced Financial Education (CAFÉ) program and happens to be my academic advisor. Through interacting with him each year via meetings and taking his courses such as Principle of Investments, I came to the realization that he is an expert in this industry with decades of knowledge available at my fingertips. I sought out Dr. Melton and asked for his feedback and recommendations on the following two questions:
- What are the main questions to ask prospects (clients)?
- How often do you have to change your approach when working with a new client to effectively communicate with them to reach their objectives?
Feedback for question (1): When working with a prospective client they are most likely going to decide in the first five minutes whether or not they want to work with you. It has little to do with what you know about the industry because most finance professionals are all certified under the same criteria; thus, it comes down to how effective you are at communication and one’s ability to get to know that client and their goals. I was given the following seven mainstream questions to ask each prospect to understand their background and purpose for working with you (the professional):
- “Who are you?” - Introductions are so important. Give the client a chance to talk. This is an opportunity to ask about career, children, work history, leisure activities, etc. If commonality exists, it will lead to other general conversation, and that's good. Getting to know someone should be enjoyable for you, after all you're in the people business.
- “How is it you’d like me to help you?”- They're in the room talking to you, so assume they think they need help. What is their motivation for being there? If you've not clearly explained what you do and how you do it, now's the time. Explain how your services differ from the other advisors in your area.
- “What are you doing now?”- Only ask this question when the client is ready to do business. This should prompt a discussion about the who, when, what and where of the prospective client's financial picture. The next thing you know, you're in a full-blown, detailed discussion
- “What are you trying to accomplish?”- What are their goals, dreams and aspirations? If you're meeting with spouses (and I suggest you never meet one without the other), get them talking. Goals may be different between them. A tense discussion in your meeting room can be a good thing. If they sincerely don't know what they're trying to do, commit to helping them structure a plan focused on defining their goals, dreams and aspiration.
- “What regarding your investment/ finances/ goals concerns you the most?”- Now you're getting to the good stuff of the investor's intentions and the "why" of what they're doing. Also, it is likely that you just asked a question that their current advisor has most likely never asked them.
- “Do you feel like you are currently accomplishing your goals?”- When asking spouses, they may disagree on this one and again, that's good. If the reply is "yes," ask "Why do you feel that way?" You may get a blank stare or you may get a lengthy answer. This should reveal confidence in their plan or lack thereof. If it's "no," simply say, "I can help." In a few concise sentences, say you understand their current situation and explain why you are the advisor for the job. For example: "I understand you have a portfolio that is drastically underperforming its benchmark. Your biggest concern is you'll be unprepared for your retirement because you haven't saved enough or realized the return on your investments." Then give a hypothetical example of how you can help.
- “What would you like your next step to be?”- No matter the answer, you're going to suggest something here. "I'd like to suggest we meet again and go over some details" is a good start. Set an additional appointment right then and there. Objections? Go back to asking questions. Once you've got the approval for the additional meeting, shake hands, hug, do whatever you do and let them get about their day.
These replies gave me an overall understanding on the kinds of questions a financial professional has to ask in order to do their job and to work in a way that is specific to each and every client, and is personalized to achieving whatever their goals may be (e.g. retirement, school, dream home, etc.).
Finally, the response to my question of “How often do you have to change your approach when working with a new client to effectively communicate with them to reach their objectives?”, was more or less what I expected the answer to be. I was informed that a financial advisor has to almost change their approach for every client they have; that no two clients are alike and the way one may connect with a brain surgeon is going to be different than how they communicate with a stay-at-home mother. You have to have situational awareness as well and be able to put yourself in their shoes and see how they process information and then adjust your professional approach/ communication techniques to achieve their objective. For example, instead of using terminology such as “Alpha” to represent “the active return on an investment, gauges the performance of an investment against a market index or benchmark which is considered to represent the market’s movement as a whole”. An advisor may dumb the terminology down to “a way to measure your portfolios performance when taking into account the levels of risk your stocks poses”.
CONCLUSION
Since identifying and analyzing scientific in my field of study is as easy as others may have been, this analysis has been a bit of a challenge. Though, with it being a challenge, it has forced myself to look at finance through multiple perspective lenses. This newly obtained perspective combined with analyzing feedback from finance professionals has allowed myself to augment my knowledge in finance.
REFERENCES
Behavioral Finance. (2015, July 25). Retrieved March 26, 2018, from https://www.investopedia.com/terms/b/behavioralfinance.asp
Byrne, A., & Brooks, M. (2008). Behavioral Finacne: Theories and Evidence. Retrieved February 29, 2018, from https://www.cfapubs.org/doi/pdf/10.2470/rflr.v3.n1.1
Effective communication. (n.d.). Retrieved April 05, 2018, from http://www.yourdictionary.com/effective-communication