CEO Insights

The behavioral side of investing

Today’s overabundance of up-to-the-minute media can send investors on an emotional rollercoaster—and there’s data to back that up.

A recent study Columbia University study showed that negatively worded media reports trigger strong emotional responses from investors. The negative feelings these reports set off, meanwhile, also tend to outstrip the positive reactions good press can cause.

“Our society and media outlets have done a great job of overwhelming clients and even confusing some of the brightest investors,” said Randy Risler, president and CEO of Nine Pillars Wealth Management.

Nine Pillars Wealth Management provides comprehensive wealth management and financial planning services. The Eau Claire, Wisconsin, firm does not have a firm minimum to invest, but Risler said Nine Pillars Wealth Management does screen potential investors for seriousness and dedication to meeting financial goals.

The media’s impact on the market has many financial experts wishing the media would do more to self-regulate. Risler, who has been in finance for 17 years, would like to see media outlets take greater care in how they present negative news.

Rislersmaller“They have no fiduciary responsibility or accountability to their viewers, but the message can be very impactful due to short-term thinking and sensationalism,” Risler said.

The media’s ability to set off sharp emotional reactions is not restricted to finance, of course. Many political experts, TV commentators, and politicians scold the media for its “horse race” approach to elections. And many contend that the cable TV networks’ calling of elections in real-time can impact voter turnout as people get the impression that their candidate will lose, regardless of whether they vote or not. But whether it’s politics or finance, the media’s loud noises, often accompanied by little substance, can sometimes do nothing more than crowd out the real story.

The media’ unfettered ability to publish, while protecting consumers from government censorship, can leave investors anxious and reaching for the phone—and their advisors can find it difficult to talk clients down from irrational decisions spurred by the nightly news.

Risler tackles this problem by educating clients on the “basics.” Educating investors is key, he added.

“We try making each component of investing as simple and tangible as we can,” he said. “Since we’re not using overwhelming technical language, it makes them more comfortable.”

Regulators continue to implement tougher standards on financial industry professionals, but the media remains exempt. Conversely, other regulations intended to protect investors are tying the hands of the advisors trying to help them.

“The DOL rule was grounded with very positive intentions. Unfortunately, there still is a struggle to minimize unintended consequences,” Risler said, explaining that the Trump administration is currently looking to begin a conversation with the industry on how to increase transparency while allowing experts to retain the ability to find creative solutions that are in the best interest of an individual’s unique needs.

The Trump administration has suspended the DOL rule, for now, and plans to rework its provisions although no details have been made available about what changes might come. The DOL also released additional guidance on the rule in April, instructing regulators not to enforce the rule until further notice, according to a directive released by the agency.

Risler--who passed the securities licensure exams before graduating college--said behavioral finance theories prove that managing human emotion is critical to attaining successful and long term results. This includes managing reactions to the information overload bombarding people every day in the media and through technology.

The emotional element also hinders the effectiveness of investing apps and tech tools. Risler explained that these tools lack the ability to manage emotions during times of economic uncertainty when investors are most prone to making risky decisions and costly errors.

“Information is not the same as knowledge,” Risler said. “Human expertise adds value beyond what a calculator or web interface can do.”
Most clients are looking for a financial guide, Risler added.

Risler’s firm values education and self-assessment through their nine pillars philosophy. By building awareness and helping clients determine if they are positioned where they want to be at each stage of life, they enable clients to make improvements and changes where they are most needed.

Success, Risler said, isn’t measured in terms of alpha or against industry terminology. It’s measured through the eyes of their clients—clients are happy when they feel their hard-earned capital is protected.

“Our clients are most satisfied when their financial plan provides them with peace of mind and financial independence throughout their retirement,” Risler said.

“Once clients are informed,” he added, “They become motivated to shape their life decisions in a way that protects against the depletion of resources.”

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