Well-Being Advisers

Statman, Meir, "Meet Today's Challenges by Becoming a Well-Being Adviser, Journal of Financial Planning, December 2017, 22-23

Posted: 21 Mar 2018

See all articles by Meir Statman

Meir Statman

Santa Clara University - Department of Finance

Date Written: December 16, 2017

Abstract

A client fires his financial adviser because his returns lag the market and the returns of his best friend.

An adviser constructs portfolios from low-cost index funds, and his clients question why he trades so infrequently—only once a quarter when he rebalances portfolios.

An organizer of a conference for financial advisers asks a speaker to refer to the advisers in attendance as “wealth managers,” not “financial advisers.”

An adviser argues that robo-advisers can never replace human advisers.

These are four of the markers of the financial advising landscape; they represent four challenges financial advisers face. The first marker indicates that some clients see beating the market as the primary service of financial advisers. The second indicates that some clients wonder what advisers do for the fees they charge and sometimes question the fairness of these fees. The third indicates that some advisers are insecure about their roles and the titles that commonly describe them. And the fourth indicates that advisers are aware of the challenges posed by robo-advisers, even as they try to dismiss them.

Advisers can meet these challenges by becoming well-being advisers, a role that is rooted in the second generation of behavioral finance, distinct from both standard finance and the first generation of behavioral finance.

Standard finance says that investors’ wants are “rational” wants, restricted to the utilitarian benefits of high expected returns and low risk. The first generation of behavioral finance largely accepted standard finance’s notion that investors’ wants are rational, but described actual investors as irrational and offered methods for correcting cognitive and emotional errors.

The second generation of behavioral finance (Statman, Finance for Normal People, 2017) describes investors, and people more generally, as normal, distinguishing normal wants from cognitive and emotional errors, and providing guidance on avoiding errors on the way to satisfying wants.

The second generation of behavioral finance guides advisers to become well-being advisers. Well-being advisers identify clients’ wants, and help clients assess those wants, balance them, and avoid cognitive and emotional errors on the way to satisfying them.

Keywords: wellbeing, financial advisers, behavioral finance, robo-advisers, rational investors, irrational investors, normal investors

JEL Classification: G02

Suggested Citation

Statman, Meir, Well-Being Advisers (December 16, 2017). Statman, Meir, "Meet Today's Challenges by Becoming a Well-Being Adviser, Journal of Financial Planning, December 2017, 22-23. Available at SSRN: https://ssrn.com/abstract=3142039

Meir Statman (Contact Author)

Santa Clara University - Department of Finance ( email )

500 El Camino Real
Santa Clara, CA 95053
United States
408-554-4147 (Phone)
408-554-4029 (Fax)

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