Why Clients and Fund Managers Behave Badly (Hint: It’s About More than Character)

Some recent news stories of interest to those who manage private wealth:

• Are the Wealthy More Apt to Lie, Cheat, and Break the Law? According to a recent paper, “Higher Social Class Predicts Increased Unethical Behavior,” the answer is: Yes! In fact, the data showed that “upper-class individuals’ unethical tendencies are accounted for, in part, by their more favorable attitudes toward greed.” (Also check out the article that led me to the paper: “Capitalists and Other Psychopaths” in the New York Times.)
• Do Your Clients Own Shares of JPM? Are they asking you what happened? The best explanation yet of what went wrong, in my view, was published by Marketplace‘s Heidi N. Moore. If you must counsel clients sitting on an 11% loss, Moore provides a great example of how to take a complex topic, distill it to the basics, and convey it in plain English.
• Why Do Good People Go off the Rails? In “Psychology of Fraud: Why Good People Do Bad Things,” which aired on NPR, the reporters submit that the idea that bad behavior is tied to character (i.e., bad people do bad things) is “profoundly inadequate.” (At CFA Institute, we’ve also been thinking a lot about ethics and integrity.)
• Men, Women, and Money. Financial advisers say that women are very different from men when it comes to money, and a unique strategy is required to win their business. Also, it seems that advisers often miss gender distinctions. For more on the topic, check out this recent Pershing report: “Women Are Not a ‘Niche’ Market. They Are a Significant Business Opportunity.”
• Why Are Some Prepared for Disaster and Others Not? According to an article in the April edition of Management Science, which may hold lessons on attitudes toward investment risk, the answer depends on how individuals interpret prior “near-miss experiences.” When they are interpreted as disasters that did not occur, people underestimate the danger of subsequent hazardous situations and end up making riskier decisions. In contrast, those who interpret near misses as disasters that almost happened are more prepared.
• Man versus Machine. The financial Twittersphere exploded earlier this month after Betterment published a blog post with the provocative headline “Financial Advisors are Bad for Your Wealth.” Mike Alfred rose to the defense of financial advisers in a Forbes post titled “Why Betterment, Wealthfront, and Other Online Investment Firms are Wrong about Financial Advisors.”

For more news and trends, visit the Private Wealth Management Community of Practice.