Enhorning applies psychological principles to herself as much as she does to her clients. She’s aware of her own natural biases and assumptions and checks herself against them frequently, just as she nudges clients to ensure they aren’t being governed by their illogical brains. When her career began in financial services, Enhorning says she was drinking from the fire hose, learning all she could about finance, economics, and investing. She didn’t think those psych principles would apply to this work until she started serving clients on her own.
Clients didn’t just come with questions about registered accounts and capital gains tax, they were asking Enhorning about how they can best support their child with a disability, or what they could do to achieve their dream retirement. She saw them starting to tear at the investment plan when volatility hit the market, unable to bear the emotional weight of a down market. She saw that an undercurrent of psychology was essential to providing clients with the kind of personalized service they have come to expect from their advisors.
Though she is careful to stay in her lane and not to act as a psychologist, one psychological framework that Enhorning can apply to her work is the idea of the four behavioural investor types. These types, she notes, can be helpful as a simple tool for understanding client behaviours by further unpacking their innate desires, motivations, risk tolerances, and biases. While she uses these personality types as helpful tools, Enhorning stresses that she doesn’t try to put any individual client into a particular box. Instead, this offers a way of analyzing behaviour that can then help her offer course corrections for clients.
The first of the investor types, Enhorning explains, is the ‘preserver’ who, as the name suggests, is primarily concerned with safety and wealth preservation. Those are the clients who might insist on staying in GICs no matter the market conditions or interest rate environment. Those who obsessively check their accounts, and feel panicked with each small drop in the market. They often fall into the cognitive biases of loss aversion, status quo bias, and endowment bias, Enhorning says. These investors over-emphasize short-term returns, which can be problematic for long-term plans.
The second investor type is called the ‘follower,’ and typically lacks either the knowledge about financial markets or the confidence to make investment and financial decisions themselves. These investors may often be a bit passive, requiring additional coaching and education from their advisors. If guided by the right sources, these individuals can be successful, but Enhorning notes that ‘followers’ tend to take advice from various sources, and may end up losing sight of a meaningful financial plan. She notes they can tend towards recency bias, hindsight bias, and regret aversion.
