In its latest whitepaper, Behavioral Finance in Action, the Allianz Global Investors Center for Behavioral Finance offers new insights to empower both financial advisors and their clients to make better decisions. Released today, this revealing research piece was developed with leading academics to present strategies that address everyday psychological challenges in the financial advisor/client relationship.

“Emotion and intuition play a critical role in people’s decision making, which may lead to systematic and predictable errors,” said Prof. Shlomo Benartzi of UCLA, an expert in behavioral finance and Chief Behavioral Economist of the Allianz Global Investors Center for Behavioral Finance. “This paper offers academic insights that financial advisors can use to help their clients discriminate between wise intuitions and erroneous judgments.”

Behavioral Finance in Action reflects the ideas and research of notable experts, presenting four timely problems faced by advisors and clients:

• Investor paralysis – the psychological fallout from the financial crisis has caused investors to leave record amounts of cash on the sidelines
• Lack of investor discipline – investors often buy high and sell low
• A crisis of trust – the recent financial crisis has had a lasting impact on the bond of trust between financial advisors and their clients
• The disinclination to save – inadequate savings is a chronic problem, not just for retirement but for other contingencies

The Center’s research asserts that these challenges are all products of the intuitive mind and, as such, can be addressed with techniques from the “behavioral toolbox”. For example:

• To address investor paralysis, the paper recommends the “Invest More Tomorrow” strategy, where advisors invite clients to pre-commit to begin investing at a specific time in the future, and to agree on the size and frequency of subsequent periodic investments.
• The “Ulysses Strategy” seeks to help advisors rein in a lack of investor discipline by encouraging clients to pre-commit to a rational investment plan in advance of large market movements.
• Simple actions that demonstrate competence and display empathy could be the keys to regaining and maintaining the trust of clients. The paper lays out several basic actions – some of which are counterintuitive – that may help advisors regain the client trust that was battered by the financial crisis.
• The Behavioral Time Machine, currently in development, seeks to bolster savings rates by connecting individuals with their future selves. Using age-progression software, this tool allows people to see images of themselves 30 years in the future and has been proven in studies to be effective at increasing savings rates.

As with all Center for Behavioral Finance initiatives, the goal of this work is to translate academic theory into action. It represents the next stage in the Center’s long-term effort to help financial advisors incorporate behavioral finance insights and tools into their practices.

About the Allianz Global Investors Center for Behavioral Finance

Allianz Global Investors founded the Center for Behavioral Finance to empower clients to make better financial decisions. Our aim is to turn academic insights into actionable ideas and practical tools for use by financial advisors, plan sponsors and investors.

About Allianz Global Investors

Allianz Global Investors is the asset management division of Allianz SE. The Allianz Global Investors companies worldwide had more than $1.9 trillion of assets under management as of March 31, 2011. Our U.S. investment managers—PIMCO, NFJ Investment Group, RCM, Allianz Global Investors Capital and Allianz Global Investors Solutions—provide clients with a comprehensive and constantly evolving range of investment styles and products.

For More Information

For a copy of the complete whitepaper, Behavioral Finance in Action, please go to our website, www.AllianzBeFi.com.