Why Financial Professionals Should Learn Behavioral Finance

By: Kaplan Financial Education
July 29, 2021

Why Financial Professionals Should Learn Behavioral Finance

Why should financial professionals learn behavioral finance? For one, understanding the psychology, economics, and other social sciences that drive people to make certain financial choices can help finance professionals develop long-term relationships with their clients and build portfolios better suited to them. For another, the awareness of the effect that market and trading psychology, cognitive errors, and emotional reasoning have on investors is growing.

In fact, 70 percent of the 503 financial professionals who participated in a 2020 survey and who had not received behavioral finance training say they are now considering it. Seventy-eight percent of all survey respondents say they would be interested in behavioral finance training if they received accreditation for it. Seventy-nine percent feel that accreditation in behavioral finance would positively influence current and potential clients. Lastly, 90 percent think that behavioral finance training can help them build their client base and deepen relationships with existing clients.

If you’re a financial advisor, a behavioral finance approach to investing can help differentiate your services and ultimately better serve your clients. Let’s explore what is available to you in terms of becoming proficient.

What are Behavioral Finance Programs?

Behavioral finance is the study of the effects of psychology on investors and financial markets. It focuses on explaining why investors often appear to lack self-control, act against their own best interest, and make decisions based on personal biases instead of facts. Behavioral finance programs come in many forms. Some are courses and course modules offered by online training firms and universities. Others are professional programs offered by traditional universities. Some universities offer accredited behavioral finance degrees, including bachelor of science, masters of science, and Ph.D. programs. 

These programs also have all kinds of names—from “behavioral finance” to “behavioral economics and social health science.” They combine psychology and neuroscience with traditional financial practices. They aim to equip advisors with tools and training to further help their clients make sound financial decisions, maintain emotional competency, and achieve their financial goals. 

Accredited Behavioral Finance Professional℠ (ABFP℠) is the designation offered by the College for Financial Planning®, a Kaplan company. This program helps to provide an understanding of theories and hands-on practice of the knowledge to help advisors translate what they learn into their day to day client interactions.

Who Should Earn a Behavioral Finance Designation?

Gaining knowledge that is part of earning a behavioral finance designation can benefit most finance professionals, especially those who are in wealth management, securities, and financial planning fields. The College for Financial Planning® notes that finance professionals in mid-career to advanced career stages are most likely to benefit, such as experienced advisors who desire financial planning credentials to enhance their careers and advisors who wish to pursue a master of science degree at a later date. For that reason, the College’s designation is designed to accommodate working students. However, if you are in the process of earning a degree or credential in another finance field, the designation can help you as well.

No matter where you are in your career, the program gives you tools that help you understand clients better and motivate them to make wise financial moves. It also enables professionals to advance current career stages while earning credit toward their next credential.

Why Earn a Behavioral Finance Designation?

In today’s ever-changing and complex financial markets, any professional responsible for managing client assets should recognize the factors that lead to less-desirable outcomes for investors. Behavioral finance helps professionals understand the applied science of effective decision-making and how human brains are not wired to deal with the decisions that modern financial markets require. 

Because behavioral finance is an offshoot of conventional financial theory, anyone who masters skills as part of earning a designation in it can help their clients stay on a more rational course. By recognizing that human decision-makers are often influenced by emotion, biases, and cognitive errors, finance professionals with a behavioral finance designation can not only help clients see and manage their irrational tendencies, but they can also see their own. Other benefits of taking courses like the ones required for the ABFPSM designation is that they help you understand why financial bubbles develop so you can design strategies that avoid that behavior and identify the psychological reasons that lead clients to make severe investment errors.

This program also helps advisors differentiate themselves by adding an extra dimension to the advice they provide to clients. Many investment-focused advisors, robo-advisors, and even other financial planning firms do not yet take the behavioral dimension into account when providing advice and developing goals. The ability to help clients manage their emotions and connect their goals and behavior with what is most important to them is a significant value-add.  An advisor who understands behavioral finance and uses it along with other skills and knowledge will also be better able to build deep, meaningful relationships with clients.

Behavioral Finance Skills for Financial Professionals

The fact of the matter is that investment markets are more about emotions than they are about rationality. This is where the science of behavioral finance comes into play. There are several studies that indicate that the difference between successful and unsuccessful investors is not in their cognitive abilities but rather in their behavioral abilities. Here are some of the advantages of using this philosophy after earning your designation to make investment decisions.

Understanding Your Clients’ Biases

Pointing out biased behavior, especially in the moment, may not be well received. To be effective, you need a plan in place in advance. Few of us are comfortable owning up to our own bias, but if you approach the subject correctly, your clients may benefit, and so will you. A more self-aware client should produce fewer counterproductive demands, which could mean less stress and greater productivity for you.  

Understanding Your Clients’ Behavior

The more you understand what motivates your prospects and clients, the better your chances of success when it comes to attracting and retaining them. When you begin to see things from your clients’ and prospects’ point of view, you can start to influence their decisions and help them make good ones. Then you will be able to build strong client relationships, anticipate your client needs, and manage their expectations.

Understanding Emotional Reasoning

Once you understand what may be getting in the way of solid decision-making, while you cannot remove emotions, you can help mitigate them. This could include utilizing goals-based investing, which helps you understand from the very first conversation what your clients are trying to accomplish. The more you understand your clients’ emotions and anticipate those behaviors, the better their financial decision-making can be. 

Behavioral Finance Applications for Retirement

Financial advisors with a behavioral finance designation can encourage clients to make binding decisions earlier in life and prior to the onset of cognitive impairment. They can also help protect older clients from unwisely draining their assets too quickly, either by recommending financial products that guarantee payouts for life, or by limiting the amount that may be withdrawn at a given point.

How to Become an Accredited Behavioral Finance Professional

As the first advisor-focused behavioral finance designation from an accredited college or university, the Accredited Behavioral Finance Professional℠ (ABFP℠) program, is a unique program that enhances advisors’ emotional competencies, client interactions, and financial planning advice through a thorough understanding of psychological explanations for economic behavior and hands-on practice of knowledge.

Designed for financial professionals in mid to advanced stages of their career, the ABFP℠ program brings together comprehensive research and trends from leaders and experts in the area of behavioral finance. Engaging, in-class activities enable you to start using your new skills with existing clients from day one.

Course topics in this program include:

  • Foundations in behavioral finance

  • Cognitive and knowledge errors

  • Overconfidence and emotional reasoning

  • Investor behavior

  • Debiasing and client management 

  • Behavioral finance applications

  • Behavioral finance applications for retirement

After you complete your coursework, you will have to pass a final exam. The exam has 50 questions on it, and you will have two hours to complete it. The passing score is 70 percent or better. 

This program can also help you fulfill continuing education (CE) requirements. For example,If you are a CFP® professional, it is one of the designation programs that fulfills 28 hours of CE as part of your CFP® certification renewal. If you currently hold a professional designation from the College for Financial Planning®, completion of a new professional designation fulfills CE hours as part of the renewal of your current designation.

Could a Behavioral Finance Designation Benefit Your Career?

The survey mentioned at the beginning of this article found that those who incorporate behavioral finance into client relationships see benefits in many areas. Of those surveyed who had received behavioral finance training, 79% said it resulted in better client relationships, 75% said it resulted in better client reception of their planning advice, and 22% said it resulted in more clients. 

If you are interested in earning the designation to benefit you or your career, read more information about behavioral finance designations.

Are you ready to earn your Accredited Behavioral Finance Professional Designation?


Learn More about the ABFP Program