Tag Archive for: CFA

Behavioral Finance – A Three-Part Model for Client Relationships

Behavioral finance can deepen your client relationships during market turmoil, if you recognize your clients’ emotional right-brained reactions before you offer insights based on your analytical left-brained analysis. By applying a three-pronged process of Recognize-Reflect-Respond, you can adapt to new information in a thoughtful and effective framework.

Gayle H. Buff, president of Buff Capital Management, proposed this model in “Behavioral Finance: So What?” her June 15 presentation to the Boston Security Analysts Society (BSAS). Buff has 20 years of experience working with individual investors and is a past president of the BSAS. As a member of the CFA Institute’s Speaker Retainer Program, she has spoken about behavioral finance to CFA societies around the world.

Continue reading my article, “Behavioral Finance – A Three-Part Model for Client Relationships,” in Advisor Perspectives.

Behavioral finance can deepen your client relationships

Understanding behavioral finance can improve your client relationships. That’s the lesson I took away from “Behavioral Finance: So What?”, a June 15 presentation by Gayle H. Buff, president of Buff Capital Management, to the Boston Security Analysts Society (BSAS). Buff has 20 years of experience working with  individual investors and is a past president of the BSAS.

Like financial advisors, clients of investment and wealth managers don’t act with complete rationality. They react with their emotional right brain in addition to their rational, reflective left brain. However, Buff said, to optimize our ability to make informed decisions, we need to use both sides of our brains. Advisors who understand this, can tailor their interactions with clients to take advantage of this. 

Behavioral finance experts have identified loss aversion, uncertainty aversion, and overconfidence as a few of the key investor tendencies that reflect the influence of the right brain. During the past year’s financial crisis, Buff observed many instances where fear of uncertainty trumped fear of loss. Some of her clients wanted to sell their investments, even if that potentially meant locking in losses.

Behavioral finance helped Buff respond effectively to her clients who wanted to sell. Understanding that clients’ “sell” requests were intensely emotional, “I don’t take it personally or as them telling me I’ve done something bad,” she said. Instead of arguing with them, Buff listened to her clients’ fears. “Talking about what makes us afraid makes us less fearful,” she said.

It isn’t easy for most advisors to follow Buff’s strategy. “We often want to rush in with facts,” she said. However, advisors need first to acknowledge their clients’ feelings. Only after doing that does it make sense to give clients an alternative perspective on the issues. The advisor who takes this two-step approach will find their clients more receptive.

In fact, if advisors and clients can work through a financial crisis, they may end up with a much deeper relationship. One of the big advantages may be enhancing clients’ understanding of risk. Prior to the past year’s financial crisis, most clients overestimated their risk tolerance said Buff.

Buff listed five areas that advisors should explore with their clients, including clients’
1. Capacity to tolerate market volatility and economic risk
2. Characteristic defensive posture in the face of anxiety and uncertainty;
3. Vulnerabilities, passions, strengths, weaknesses, and dreams
4. Ability to process, integrate, and adapt to new information a new experience
5. Commitment to working collaboratively and synergistically as one-half of the advisor–client relationship

This blog post only touches on a tiny portion of Buff’s material, which included a bibliography on complexity theory and adaptive systems, behavioral finance and investor psychology, and the intersection of theory and practice. However, she speaks on behavioral finance to CFA societies around the world, so she may come to your area.

By the way, it has been my pleasure to get to know Gayle through volunteering with her on the BSAS’ Private Wealth Management committee. I’ve seen her dedication to financial education.

Madoff whistleblower Harry Markopolos speaks

You can see Harry Markopolos speak in the video excerpts that make up part of “One-On-One With Harry Markopolos: Validated, But Not Satisfied” on WBUR’s website.

According to an editor’s note, “More interview excerpts will be posted March 30 in conjunction with a special profile of Markopolos slated to air on Morning Edition.”

Also, you can view the “60 Minutes” interview with Harry, including some clips from the BSAS Market Outlook dinner.

Top five types of freelance writing for CFA charterholders

In tough times, CFA charterholders are getting creative about their job options. That’s undoubtedly why the January 2009 panel on “Alternative Careers for CFA Charterholders” that I organized for the Boston Security Analysts Society was well attended. Freelance writing is one non-traditional option. In this blog post I discuss five types of writing.

1. Investment performance commentary for institutional portfolios or mutual funds
Reporting and explaining a portfolio’s investment performance is an important component of client service. In the case of mutual funds, annual and semiannual reports are mandated by law.

In my experience, this is the freelance writing gig that requires the least writing skill because reports follow a strictly defined model. There’s no room for individual creativity. It’s more important that you understand attribution analysis and other components that feed into reports. You should also be accurate and detail-oriented.

2. Company reports for websites or newsletters
Lisa Springer, CFA (lisa AT beaconequityresearch.com), says

The great thing about writing for a newsletter or website is it’s steady, predictable work, typically involving weekly assignments. In most cases, they pick the stocks they want you to write up. Most jobs are free-lance and permit telecommuting. I think there are probably more opportunities out there writing for websites than for print newsletters since most newsletters are 1-2 person operations.

Here’s her advice on finding opportunities:

This is not the best time to be looking for this type of work since ad revenues are way down and the investment web sites are mostly ad-driven. There is also a trend towards smaller “sound bytes” (100 words or less) rather than 500-800 word articles. Still, sites like Motley Fool and Street Authority were recently hiring free-lance writers. I’ve also found opportunities on free-lance writer boards, contacting sites that interest me directly (just google investment web sites and you will find hundreds of sites) and even on Craigslist.

3. Market commentary
Market commentary requires a mix of writing skill and investment knowledge. Sometimes clients want you to write commentary from scratch, reporting your own opinions and statistics. Other times, they’ll want you to interview their investment professionals to reflect their take on the market.

4. White papers
The ability to identify the client’s problem and write persuasively about it is key to a successful white paper. White papers are a cross between an article and a brochure. They typically pose a problem faced by clients and tell how to solve the problem. While the solution is offered by the company commissioning the white paper, the most credible white papers don’t overtly flog their products.

Information for your white papers may come from different sources: your own research, materials provided by your client, and interviews with experts at your client’s firm.

5. Articles and books
Of the five kinds of writing discussed here, articles and books require the highest degree of writing skill. They may also expose you to clients who don’t understand your topics. Writer Annie Logue, CFA, author of Socially Responsible Investing for Dummies, says “editors don’t always understand finance. If you can make it understandable to the editor, you can make it understandable to anyone.”Writing for individual investors may force you to work hard to describe your topic in less sophisticated terms.

Writing articles and books also requires the ability to develop story ideas and pitch them to editors. That’s something you don’t typically do with corporate clients.

Resources for freelance writers
Freelance writing isn’t just about the mechanics of writing.  As Logue says, “You have to spend time on marketing, information technology, accounting, etc.”

A number of websites and blogs offer advice, classes, and other resources for freelance writers.

Investment Writing blog posts:


provocative quote about target date fund (TDF) advisers

Are target date fund advisers swayed by a conflict of interest?

On p. 41 of CFA Magazine (Jan./Feb. 2009), Mark Ruloff, director of asset allocation for Watson Wyatt Investment Consulting, says, “Advisers…are implementing the glidepath. They might have a bias toward keeping higher equity allocations longer because it helps their own fees…. There are legitimate reasons for advisers to arrive at different glide paths, but there’s the appearance of a conflict of interest.”

What do you think?

Advice from a hiring manager for CFAs who want to freelance

If you’re a CFA charterholder considering a switch to freelance writing, read on for advice from the perspective of the corporate manager who may hire you.  The manager asked to remain anonymous. Thank you, generous manager, you know who you are! 

1. What type of writing assignments best match the freelancer’s skills?  Is he or she a strong technical writer with a bent toward white-paper research, or does he/she lean toward less technical writing such as newsletters, brochure text, Web site communication? 

2. Does he/she have a strong background in either retail or institutional investment management?  I am frequently contacted by freelancers with good retail communication skills, who aren’t familiar with the more technical needs of our institutional audience.

3. What is a realistic client/workload?  Most freelance needs relate to quarter- or year-end crunches.  How will a writer fill the ‘tween time? And how many of those quarter cruncher assignments can he/she expect to fulfill? 

4. Does the writer have the most state-of-the-art communication systems at home/office?  He/she will be dealing with a variety of systems at the client level while on tight deadlines.  Incompatible systems can be a deal-killer. 

5. Is the writer’s style compatible with that of the client?  We ensure that our writers receive our internal newsletters, opinion pieces, Web updates to provide continuity of “voice” as well as keep them apprised of activities at the firm.

6. Corollary to p
oint 5, a freelancer needs a strong point person at the client firm to ensure he/she receives attribution reports, performance numbers, background literature, etc. in a timely manner to complete the assignment.

7. Join a local business-writing association (or work through your CFA society!) to keep abreast of current freelancing rates and to learn of independent contractors who may be able to subcontract your skills. 

  Deliver the written assignment with sufficient time for compliance, proofing, portfolio manager review, etc. at the client, before the material must go to print. We look for material one-two days before the “actual” deadline. 

This article complements an earlier list of tips by freelance writer Omar Bassal, CFA. Note that both Omar and this corporate manager stress the importance of making deadlines.

Top 10 tips for CFA charterholders considering freelance writing

If you’re a CFA charterholder considering a freelance writing career, here’s advice from Omar Bassal, CFA. Omar is the head of asset management at NBK Capital, a freelance writer, and the author of Swing Trading for Dummies

I’m posting Omar’s article as part of my preparation for a panel on “Alternative Careers for CFA Charterholders” to be presented to the Boston Security Analysts Society on January 14, 2009.

Here’s Omar’s advice.

1. Choose your work carefully: Part of being a good writer is choosing the right businesses and people to work with. There are a lot of fly-by-night operations that want text to fill space. While they might pay the bills, they won’t further your professional development.

2. Get a proofreader: No one is perfect—not even CFA charterholders. Having a second pair of eyes before you submit your work is always smart. Find a reasonably priced person via Craigslist.

3. Know your audience: Be able to differentiate between unsophisticated audiences (where “standard deviation” is too technical a term to use), semi-sophisticated audiences (where “standard deviation” needs no further explanation) and sophisticated audiences (where “standard deviation” is an incomplete view of risk).

4. Get paid by work, not by hour: Firms will want to pay you by the hour. But you should push to be paid a flat rate for your work. This doesn’t always mean you’ll get more. But over time, you’ll be more efficient and productive as a result. Plus, you won’t need to keep tabs on every minute you’re working versus checking e-mail.

5. Seek contracts: Monthly and quarterly newsletters and reviews are an excellent way to get your hands on steady income.

6. Network with other writers: There are many fish in the sea and writing as a CFA charterholder doesn’t mean you’re taking away business from a fellow CFA charterholder. Sometimes clients will come to you with requests that you’re unwilling or unable to do. Being able to pass that work onto other contacts means your client feels his/her needs are being met by you. Do it often and others will return the favor.

7. A CFA charter does not mean you know everything
: If you’re an expert in equities, you may find navigating fixed income waters tough. Make sure you thoroughly understand what you’re getting into before you agree to do a job.

8. Have a contract: Approach writing as you would any other business. Have a contract in place for every writing job which explains  your responsibilities, your contractor’s expectations, delivery schedules, terms of cancellation and prohibition of passing your work on to other parties. Besides protecting your interests, a contract will flash a signal that you’re a professional writer.

9. Seek out non-traditional clients: Realize that your easiest business may come from non-traditional clients. “Traditional clients” may be mutual funds, financial advisors and institutional asset management firms. Non-traditional clients include trade groups with pension plans, foundations, endowments and other less sought after institutions.

10. Punctuality is everything: Don’t view your text as the finish line for your contractor. Your work will likely be checked by senior staff or formatted for e-mailing or printing—all things based on firm schedules. Treat your work as a business. Being late means being unreliable—no matter how great the final text may be.

"Female Fund Managers Make Strides," according to Morningstar

Today women make up 12% of the managers of the 200 largest mutual funds, according to “Female Fund Managers Make Strides,” a Dec. 1 Morningstar article.

Twelve percent may not sound like much, but that’s up 50% from 1998. 

On the other hand, as the article notes, women make up 19% of active CFA charterholders. “it seems reasonable to think that the percent at the biggest funds should lag the CFA charterholders figure by a few years.” Do you agree? 

Related post: “The Testosterone Factor in Mutual Funds

"Alternative Careers for CFA Charterholders" on Jan. 14

I’m one of four panelists presenting to the Boston Security Analysts Society (BSAS) on “Alternative Careers for CFA Charterholders” on January 14.

Among the four of us, we have experience as a due diligence analyst, treasurer, investment technology salesperson, consultant, and writer. We’ll help you understand what each job involves and how you can target your job hunt.

In addition to my role as panelist, I’m a member of the group planning career development events for the BSAS. So, I’m interested in your ideas for other career-related events for CFA charterholders.

Please join us on January 14 if you’d like to learn more about alternative careers.

Three recruiters talk about hiring at investment management and mutual fund firms

Hiring is down, but not out, at investment management and mutual fund firms.

That’s according to three Boston-area recruiters I queried recently.

“Overall, hiring in the mutual fund industry is down sharply from where it was 3 years ago,” said Charles O’Neill, principal, Diversified Management Resources. His firm’s Mutual Fund Careers website scans openings from online sources and offers an online job search tool.

Michael Kulesza, managing director of Horton International‘s Boston office, emailed me that “Despite the turmoil in the stock market, hiring does continue, but at a slower rate.  What is interesting is the hiring is most vibrant at smaller asset management firms vs. the largest firms.  We are working with several Asset Managers whose focus is Endowments, Foundations and Family Offices.”

O’Neill said the roughly 7,000 online job openings in the mutual fund industry include nearly 4,000 in sales and relationship management and 1,500 in compliance and operations. “About 500 postings require or prefer candidates who are Chartered Financial Analysts,” he added.

Marketing professionals face a tough environment. “The count for marketing-related positions is down very sharply—perhaps because many companies continue to view marketing as an expense rather than as a revenue-generator,” said O’Neill.

Jerry Grady of the Ward Group, an executive search firm specializing in marketing and communications professionals, agrees that demand for mutual fund marketers is soft. However, firms are showing interest in marketers who can think strategicallyfor example, segmenting a channel and creating different value propositionsas they target intermediaries.

Grady also sees a shrinking of the divide between mutual fund product management and marketing. Some firms seek product managers who can think like marketersand vice versa. At these firms, it is not enough for product managers simply to be able to communicate with portfolio managers. If this trend continues, mutual funds will become more like consumer packaged goods, where product management and marketing are combined.

Looking forward, here’s what O’Neill predicts. 

Most employers seem to be in a wait and see mode for now. But further, sharp declines in the equity markets will require a total recasting of money managers’ budgetsand at that point, all bets are off. It is not inconceivable that industry employment levels—through attrition as well as potential layoffs on a large scalecould result in a much smaller, more compact business than we’ve seen in many years. 

What’s YOUR take on investment management hiring trends? Please leave a comment.

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