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Merrill Moves to Upgrade Behavioral-Finance Support

By Bruce Love February 4, 2016

Merrill Lynch advisors are increasingly gaining access to a growing team of behavioral-finance resources and staff as goals-based investing becomes intrinsic to the wirehouse’s advice offering.

Relatively unknown outside the company, Michael Liersch has been quietly growing a behavioral-finance brain trust inside Merrill. And while he would not be pinned down on future plans for his team, it is understood that the increasing focus on behavioral finance at the wirehouse will fuel the addition of more team members in the next few years. In fact, the team is currently filling at least two additional positions.

“It’s a powerful thing for advisors to exchange information and do something personally meaningful for their clients to help them align their investments to their goals,” says Liersch, who has been head of behavioral finance and goals-based consulting at Merrill since 2011.

He is also planning to substantially grow the firm’s online toolkit for behavioral finance and goals-based investing, including improvements to Merrill’s wealth management platform and range of resources for advisors.

Michael Liersch on how his behavioral finance team works with advisors.

Aubrey Lee, a Merrill advisor in Novi, Mich., says the resources helped him evolve from an investment expert to someone who collaborates with his clients to identify and achieve their goals.

“Early on I was dubious about behavioral finance,” says Lee. “I started to default back to performance-oriented benchmarks. But those charts aren’t enough. To go deeper and become more useful to your clients it became clear that you must truly understand their goals and drivers. You can’t do that without the tools and training.”

Masters of the Mind

Ralph Byer, a Merrill advisor in Plantation, Fla., was an early adopter and admits to being his own guinea pig. “It worked for me personally and it opened up useful discussions with my clients.”

Byer concedes some advisors don’t like to ask personal things of their clients. “Things that they know they really should be asking. But behavioral finance and goals-based investing gives them the skills, tools and processes to have these important conversations.”

Merrill Lynch’s 25-member behavioral finance team is divided into three work groups.

Eleven team members work in the field with advisors and clients – one in each of Merrill’s regional divisions and one working specifically with ultra high net worth clients – collaborating to apply behavioral finance and goals-based investing principles to client portfolios.

With feedback from field operatives a client research group focuses on understanding what investors want from their advisors, and a tech team develops practical tools.

By industry standards, Merrill’s behavioral finance group is a reasonably large concern, says Alois Pirker, research director at the industry think tank Aite Group.

“Merrill Lynch is ahead of the other wirehouses when it comes to building a dedicated team and implementing behavioral finance,” says Pirker. “It’s not just a couple of people in the corner of the office somewhere. It goes to the heart of what Merrill is doing for their advisors.”

The team provides considerable online and in-house training for advisors and Liersch’s ultimate goal is that alongside the goals-based investment philosophy, behavioral finance will be infused in the culture of Merrill advisors.

Tools of the Trade

A few years ago the tech team created Merrill’s Investment Personality Assessment – a proprietary psychometric and behavioral finance tool for advisors to initiate genuine conversations with clients about the intent of their wealth.

Liersch says it helps advisors understand their clients as people and develop financial strategies aligned to their unique goals, risk tolerance, feelings and attitudes toward investing, hopefully making the outcomes personally meaningful. The IPA tool slots into Wealth Outlook, Merrill’s longtime goals-based platform.

Michael Liersch (photo by Mike McGregor)

On Monday the wirehouse is rolling out enhancements to Wealth Outlook based on feedback from advisors and Liersch’s in-the-field consulting team. In particular the platform’s Goal Funding Tool – which helps determine the cost of client goals and assess the likelihood of meeting them – will be simplified and provide more flexibility for advisors to evaluate client-goal feasibility.

The team’s unwritten goal is to put behavioral finance front-and-center of how Merrill Lynch advisors service their clients. The endgame, says Liersch, is for Merrill Lynch clients to embrace their personal and emotional needs when they think about investing, rather than reject them.

And this is the direction the industry as a whole seems to be heading, says Aite’s Pirker: “Consumers want value from their advisors, not just products. Practical behavioral finance strategies exemplify that value.”

But even Liersch and his team admit that for some advisors it can be a steep learning curve to gather the new skills required. And some advisors balk at the idea.

“The first rule of behavioral finance is don’t talk about behavioral finance,” says Andrew Porter, a member of Liersch’s team.

Andrew Porter

When working with advisors and investors, Porter’s approach is to make the process feel as natural as possible.

“An investor’s emotional life is here to stay, so there’s no point denying it,” Porter says. “The good advisors understand this and practice elements of behavioral finance without even knowing it. But this isn’t an intuitive process. To do it effectively and consistently for your clients you need tools and you need skills. We have the tools and advisors can learn the skills.”