Ideas

Jobs in Behavioral Finance: Seven Examples

I get asked just about weekly how to have a career in behavioral finance and I never have an easy answer. Inasmuch as behavioral finance is a "mutt" of a discipline, it draws  people from a wide array of backgrounds, most of whom combine a graduate degree with experience that rounds out their weak spots. For instance, I am a psychologist by education who has had to learn the finance side of the behavioral finance world. Others like Richard Thaler are economists who have become steeped in the science of human behavior over time. Since there is no linear path to a career in behavioral finance, I thought it might be instructive to learn from some people who are working in the field and making big contributions.

DANIEL CROSBY   

What do you do?

I’m the founder of Nocturne Capital, an asset manager that blends research from behavioral science and investment management to create values-based portfolios.

How does behavioral science play a role?

I am a psychologist by education and behavioral science undergirds everything we do at Nocturne. I believe that investment management as a discipline is grossly overengineered and I incorporate simple truths about human behavior into my work in the hopes of an improved and simplified process.

What is your hope for the future of behavioral finance?

Psychology began as the study of mental pathology and has only recently moved in the direction of studying what makes people exceptional and happy. Likewise, I hope that behavioral finance will move away from a focus on “irrationality” and move toward providing positive, concrete solutions for investors.

How can you be reached?

On Twitter @danielcrosby or here at www.nocturnecapital.com

SARAH FALLAW

What do you do?

Short answer: I’m the President and Founder of Data Points. Long answer: I’m an Industrial psychologist and psychometrician, and I started Data Points to offer a technology-enabled way for firms and advisors to take advantage of behavioral science as a means for identifying and developing their clients’ propensity to build wealth over time. My focus has been on linking the research and data from The Millionaire Next Door with the science of predicting success in managing one’s finances.

How does behavioral science play a role?

There is a scientific way to measure patterns of life experiences and behaviors this science has been used for years in leader and executive assessment and selection. We’ve identified the critical factors that impact individual financial success so that companies can identify high potential clients – those who will be most likely to build wealth over time. Likewise, advisors can better coach and develop their clients by addressing the critical behaviors that we’ve found to predict net worth regardless of age, income, and percentage of inherited wealth.

What is your hope for the future of BeFi? 

My hope is that the financial services industry will recognize the value of understanding their client’s patterns of financial behaviors beyond investing behaviors and the digital footprint that their clients leave. There are many factors that are critical to one’s financial success that cannot and are not being measured online. Cognitive biases in investing are just one piece of a bigger puzzle: if we can add more scientific rigor to the study of all financial management behaviors, advisors and firms will be better equipped to coach and develop their clients.

Where can people reach you?

www.datapoints.com

@sarahfallaw

 

AARON KLEIN

What do you do?

I’m CEO at Riskalyze, and lead a company on a mission to build fearless investors. We empower advisors to pinpoint a client’s Risk Number and create risk alignment between clients, their portfolios and their expectations.

How does behavioral science play a role?

Investors are about 2.5x more focused on downside risk than upside gain, and that demonstrates itself most often when they get scared, sell low, wait until the markets “feel safe” and then buy back in at the high. We’re contrarians in that we believe investors are better off taking less risk if that’s what it takes to keep them invested long term.

What is your hope for the future of behavioral finance?

Driving risk alignment between clients, their portfolios and their expectations is the greatest factor in turning fearful investors into fearless investors. We’re rapidly turning the Risk Number into the foundation of driving that alignment for the world’s investments and investors.

Where can people reach you to learn more about your work?

Riskalyze.com will tell you a lot about how we empower advisors. My wife uses my @AaronKlein twitter handle as proof of life when I’m traveling.

 

ERIKA RASURE

What do you do?

I'm an assistant professor in financial services, studying for the November CFP exam. My goal as an educator and practitioner is to support the BeFi revolution in making it a non-negotiable component of both practitioner and client experience and education.

How does behavioral science play a role?

In the courses I teach, I emphasize how and why fear and greed can turn even the most level-headed individuals into completely irrational financial disasters. 

What is your hope for the future of BeFi?

That it becomes engrained as a valuable part of traditional financial and economic (it's a hope) education programs and that practitioners can effectively implement BeFi strategies to maximize return and minimize financial planning irrationality. 

 

CLARE FLYNN LEVY

What do you do?

Essentia makes software that helps human investors play to their strengths and avoid their weaknesses. 

How does behavioral science play a role?

What we're doing is essentially behavioural analytics, whereby you can see and quantify the impact of bias on investment decisions.  But we also use behavioural science in how we help our clients mitigate bias - we use "proactive nudges" to help them get into valuable habits and avoid making the same mistakes over and over.

What is your hope for the future of BeFi? 

I expect the application of BeFi to become a fundamental part of the investment process for all human fund managers - it's a matter of survival.

Where can people reach you?

www.essentia-analytics.com

@essentia_sbi

 

DAN EGAN

What do you do?

I manage the investing and behavioral design programs for Betterment, an online financial advisor and investment manager. That includes a team of quantitative researchers and designers. I try to design the portfolios and investment process in a way that makes it easy for customers to be successful financially. 

How does behavioral science play a role?

As we're an online investment advisor, the design of our advice, our portfolios, and our customer management is very important. We stay on top of the research, and look for opportunities to apply useful insights in the real world. We do a lot of RCT type testing of these UX changes, for example. We also look to mitigate common behavioral biases through pro-active interventions. 

What is your hope for the future of BeFi? 

I have high hopes for scalable personalization and ensuring financial stability and security for more people. I hope that the reach will expand (as it seems to be doing) to have more pervasive influence. 

Where can people reach you?

www.dpegan.com

@daniel_egan

dp.egan@dpegan.com

 

BRIAN PORTNOY

What do you do?

I am the head of investor education and content for Virtus Investment Partners, an asset manager. I work with financial advisors and their clients to help simplify their choices on investment strategies and financial wellness. I also do a fair amount of public speaking on these topics.

How does behavioral science play a role?

Investors typically fail to reach their goals because of bad decisions, more so than bad markets. Thus, behavioral science is ground zero for generating insights on what do right and what we do wrong. I focus a lot on the process of setting and managing reasonable expectations for what investors can achieve in the capital markets and with specific fund managers they might hire. This is a theme I wrote about at some length in The Investor’s Paradox, which uses behavioral finance to make better sense of the tens of thousands investment choices we have.

What is your hope for the future of behavioral finance?

My hope is that it can provide compelling arguments, evidence, and practical tools to help people do less performance chasing, less market timing, and generally be more humble about investing, broadly defined. Currently, much of the field seems to consist a list of how quirky we all are; though interesting, that doesn’t amount to actual solutions. There’s a huge need for technology, including apps, to bridge the gap between insights and solutions.

Where can you be reached?

@brianportnoy