Practical analysis for investment professionals
24 August 2012

Weekend Reading for Financial Advisers: Scoundrels, Birds and Bees, and Risky Shifts

Over the past couple of weeks there have been lots of compelling articles for financial advisers. Here are some of my favorite reads in case you missed them.

The Industry

  • Diligence Review Corp., which specializes in performing due diligence reviews for private clients of registered investment advisers, has put together a report that color-codes advisers by their regulatory offenses on the Form ADV, the document that firms use to register with the SEC and state securities authorities. Barron’s explains what it all means in “The Scoundrels List.” (Barron’s)
  • In “The First Martyr of The Fiduciary Movement,” Joshua Brown wrote despairingly that Ron Rhoades, “the firebrand advocate at the forefront of the fiduciary model,” had “decided to fall on his own sword rather than wield it.” Rhoades announced on 20 August that due to a personal compliance snafu, he could not begin his chairmanship of the National Association of Personal Financial Advisors (NAPFA) on 1 September. (Reformed Broker)

Behavioral Finance

  • Not that we need reminding, but I’ll repeat it anyway: We’re our own worst enemy when it comes to making decisions related to money. “If there’s a second one it’s that if we don’t damage ourselves with our behavioral biases then someone else will try to do it for us,” according to the Psy-Fi blogger. “Nowhere is this more evident than with the fiendishly devilish decoy effect.” (Psy-Fi Blog)
  • Nicholas Colas, chief market strategist at ConvergEx, recently put out an excellent research note, in which he discussed the findings of a new research paper: “Do Individual Investors Learn from Their Mistakes?” The authors focused on three common, and well-documented mistakes: disposition bias, under-diversification and overconfidence. The upshot, Colas noted, is that the only mistake that novice investors learn to correct on their own is overconfidence. The other two tricky behaviors persist. (Social Science Research Network)
  • A “risky shift,” apparently, is “an outcome of the counterintuitive process of group polarization.” In other words, “if you take a group of roughly like-minded people they will gravitate to a more extreme position than that of the average team member,” as explained in “Risky Shifts: Female Underwear (Not).” (Psy-Fi Blog)
  • In “Understanding Ego Depletion,” the Duke University professor explains that “when we’ve said ‘no’ to enough yummy foods, drinks, potential purchases, and forced ourselves to do enough unwanted chores, we find ourselves in a state called ego-depletion, where we don’t have any more energy to make good decisions.” In the post he discusses some ways to avoid breaking under stress. Spoiler alert: Nothing good happens after midnight. (Dan Ariely)
  • If this topic is of interest, Michael Kitces discussed ego depletion in the context of the length of financial planning meetings in an April blog post that’s also worth reading. (Nerd’s Eye View)

And now for something completely different:

  • A fascinating video, if you can spare about 50 mins: the FT‘s Gillian Tett discusses anthropology, finance, and journalism in a keynote lecture delivered at the recent Anthropology in the World Conference 2012. (You Tube)

For more news and trends, visit the Private Wealth Communities of Practice page.

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

Newspapers detail illustration from Shutterstock.

About the Author(s)
Lauren Foster

Lauren Foster is a content director on the professional learning team at CFA Institute and host of the Take 15 Podcast. She is the former managing editor of Enterprising Investor and co-lead of CFA Institute’s Women in Investment Management initiative. Lauren spent nearly a decade on staff at the Financial Times as a reporter and editor based in the New York bureau, followed by freelance writing for Barron’s and the FT. Lauren holds a BA in political science from the University of Cape Town, and an MS in journalism from Columbia University.

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