Bob Patrick has seen enormous changes over his nearly three decades in the financial services industry. The director of education and development for the financial services firm Raymond James in Tampa, Fla., Patrick says that in the 1980s, workers at a firm like his might spend much of their day making "cold calls" to sell individual stocks to potential clients.
Today, investors can look up that information on their own online. Now, Patrick says, they turn to financial advisers for longer-term advice, and financial advising has moved from being a "transaction-oriented" to a "relationship-oriented" profession.
That transition has proved tough for some financial professionals—and that's where Frank Murtha, PhD, comes in.
Investment advisers are trained to deal with clients' money, but clients' emotions—fear, anger, even overexcitement—can leave them at a loss, says Murtha, who has a doctorate in counseling psychology from the University at Buffalo.
As a consultant and expert in behavioral finance, Murtha helps these "numbers people" understand why their clients sometimes make irrational decisions about money. His company MarketPsych, based in New York City, coaches Wall Street traders, financial advisers and individual investors who want to understand why people make the money decisions they do.
"The folks who've been trained as financial advisers don't have the benefit of the training we got as psychologists," he says. "What they missed is that ultimately making money is not the goal of investing." Instead, he says, money buys "emotional returns," such as the security of a retirement account or the satisfaction of being able to send a child to college.
Through his seminars and individual coaching sessions, Murtha helps financial advisers recognize the real motivations behind people's financial decisions and how to help them achieve their goals.
"One of the things I tell advisers," Murtha says, "is that if you take a look at the percentage of your day that gets spent managing your clients' money versus the percentage you spend managing your clients—their emotions, their expectations—then you may discover that you and I are in the same business. You're not financial advisers, you're financial counselors."
From counseling to coaching
Murtha began his psychology career on a more conventional path. As a graduate student in counseling psychology, he thought he wanted to work as a children's therapist. But after an internship running play therapy and group therapy sessions for children with emotional disturbances, he says, he decided that the work was too emotionally draining for him.
"The people who do it are wonderful, but it took too much out of me," he says.
He'd always had an interest in business and in risk-reward psychology—his dissertation explored risks and rewards in gambling—and he began to attend meetings of APA's Div. 13 (Society of Consulting Psychology). That eventually led to a job offer with the consulting firm RHR International, where he coached business executives on how to become better managers.
In 2001, he and business partner Richard Peterson, MD, a psychiatrist, founded MarketPsych. They realized, Murtha says, that financial advisers were an underserved market that could use the principles of psychology and counseling to better communicate with clients. Murtha read books and scholarly articles to bring himself up to speed on behavioral economics, then started pitching his services to financial firms.
Today, the two give seminars and presentations to hundreds of financial advisers each year. In a typical seminar, they might explain how and why an emotion like fear can drive investors' decisions and how to help investors move past that fear.
An example: A financial adviser came to Murtha about an elderly widow whose money was tied up in stocks from the company where her husband had worked for decades. The adviser wanted her to diversify her assets to lower her investment risk, but the woman refused. The adviser asked Murtha how to get her to reconsider.
"What it boiled down to was that letting go of these positions was letting go of her husband," Murtha says. "The financial adviser was saying, 'You're at risk,' and what she heard was, 'Your husband put you at risk.' Once the financial adviser realized this, he could work with his client to acknowledge the loss she felt."
He and the client took one of the shares of the stock and framed it, and she was able to bring herself to sell some of the rest.
Advisers also come to Murtha for advice on attracting new clients. Sometimes, he says, an adviser must overcome potential clients' fear, shame or embarrassment over their past investing errors in order to gain their trust—and gain their business.
Someone who has lost a big chunk of money, for example, might not want to admit that to an adviser, or might want to prove that he can make that money back on his own.
"An adviser might have a reaction like, 'Oh, how terrible,' and then the client will feel worse. What the adviser needs to do is have a conversation in which the person feels, ultimately, that they're heard and that they've saved face. A lot of this is just validating and normalizing the experience," Murtha says.
Murtha and MarketPsych arrived on the financial scene at just the right time, according to Bob Patrick. Although economists and psychologists have been studying behavioral finance and behavioral economics for decades, Patrick says, behavioral finance became mainstream in retail financial services only in the last decade, as the field transitioned to a more personal, relationship-oriented one.
"Academia picked up on [the principles of behavioral finance] long before the retail world was willing to hear it," Patrick says. "But as the [client-adviser] relationship has moved beyond just transactions, the willingness to listen to more out-of-the-box concepts has increased. Twenty years ago, someone would have been laughed at over this."
No one is laughing today. Patrick puts together training programs for his company's thousands of investment advisers, and he invited Murtha to speak last year at their training retreat. Murtha's session, he says, was one of the most popular offered.
Chris Goff, a national account manager at John Hancock, organizes financial adviser training for his company and has also worked with Murtha. He says that after the market crash of 2008, financial advisers became even more interested in understanding the psychology behind people's investment decisions.
"Clients and advisers had been whipsawed," he says. "They'd been through two historic downturns in a very short period of time."
Murtha's presentations, Goff says, helped the advisers he worked with understand what their clients were thinking.
Now, Murtha is aiming to expand his audience. Last year, he and Peterson published "MarketPsych: How to Manage Fear and Build Your Investor Identity," a book aimed at individual investors. It offers tests, exercises and advice on how to examine your own investing goals and investing style.
That kind of introspection, he says, can help people avoid "following the herd" toward bad decisions, such as pulling all of their money out of the market at its lowest point.
"It's useful to learn about yourself," he says, "and think, 'What am I investing this money for and how can I invest to meet those goals?'"
To test your own investing style, visit Murtha's website.