Behavioral Finance Explains Side Effects From Sandy And, As Always, Highlights Opportunities To Educate And Show Your Value

Wednesday, November 28, 2012 07:37
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Behavioral Finance Explains Side Effects From Sandy And, As Always, Highlights Opportunities To Educate And Show Your Value

Tags: disaster recovery | investment strategies | investor behavior

Clients may have been rushing to review their financial plans lately as a result of Hurricane Sandy, eager to make sure they are prepared in case of disaster.
 
Thing is, warnings about Sandy were plentiful from weather services for days before the storm hit. Why didn’t clients feel the urgency to check their plans then?

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This is where the behavioral influence can be easily seen. Not only did clients not think to review their financial plans before the storm hit, many refused to prepare for the storm.
 
The very term disaster recovery says it all. Why don't we use the term disaster preparedness instead?
 
Those affected by Sandy had not lost power before, why would they lose power now? They’ve not experienced a disaster before, why should they review their financial plans in anticipation of one?
 
Conservatism bias means that few people account for the impact that natural disasters have on investment portfolios and financial plans.
 
After the fact, people exhibit forecasting error by feeling completely distressed and out of control. They often make decisions in panic mode.
 
You can help create balance between these two behaviors by educating clients about the importance of extensive financial planning.
 
You can help establish the phrase disaster preparedness with your clients and significantly reduce the angst of disaster recovery.
 
Events like Sandy seem to be happening more often. It’s an opportunity to help people plan for unexpected events and to get their estate plans, all legal documents, and insurance policies up to date.

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