Psychology of Investing

Behavioural finance is the specialty of psychologists who study how and why people react to money and investing as they do. It is a fledgling effort to bring a measure of science to the very unscientific basis of know your client that currently exists.

The Psychology of Investing clearly demonstrates that suitability recommendations must take the psychological profile of the investor into consideration.

Some psychologists who monitor investment behaviour believe that profiling models (that classify the psychological make-up of the investor) will soon be used as a matter of course in brokerage firms because profiling helps the advisor pinpoint a client’s investment style. Profiling takes KYC or Know Your Client far beyond the typical completion of KYC forms that superficially attempt to assess client risk tolerance.

This course reviews the personality types and many of the psychological biases identified by psychologists that impact investing and decision-making behaviour, such as cognitive dissonance, the endowment effect, get-evenitis, overconfidence, and attachment. Every bias is placed within the advisor/investor context so the advisor can learn how to best manage investment behaviour. It is imperative for recommendations of suitability that the investment advisor recognizes the psychological motivations of the investor and takes them into account.

Completion of this course will illustrate to employers, clients, and regulators that the investment advisor takes the role of advisor seriously. Psychology of Investing takes know your client to a deeper level where the real motivations that drive client action and inaction occur and decisions may be made for reasons of which even the client is unaware.

Case studies illustrating biases complete the course.

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