With the recent success of shows like The Home Edit and Tidying Up with Marie Kondo, it’s no secret that our interest in home organization has skyrocketed. In fact, last September, The Container Store reported an 18% increase in sales following The Home Edit’s debut on Netflix[1].

Staying organized has many positive psychological benefits, including increased gratification and less stress. But it’s easy to overlook organizing the important things in life that we can’t see around our home, like our finances. For financial advisors, helping clients understand how their money is working for them is the key to helping them stay committed to their financial plans.

Mental Accounting Matters: Keep it Cohesive.

One behavioral finance bias to consider when helping your clients get organized is investors’ inclination to rely on mental accounting when thinking about their assets. Mental accounting is the tendency to treat different groups of money differently. Like a classic envelope system, where you allocate your paycheck to “envelopes” for different budget categories, investors use mental accounting when they allocate funds to specific categories or life goals, such as saving for a child’s college, or long-term retirement income[2].

Because investors have a natural tendency to assign different chunks of their money to different goals, a goals-based financial planning approach can naturally complement investors’ mental accounting bias. However, mental accounting can have many drawbacks and often results in irrational decision-making. If investment portfolios are not structured in an organized way, clients can become confused about how each part of the allocation is intended to perform. For example, an aggressive standalone equity strategy may seem like a risky investment on its own, but if the client understands that it is part of his or her longer-term financial strategy, it becomes more palatable.

As investment professionals, we have the potential to deliver significant value by helping clients create a cohesive strategy for their financial future. Here are three ways you can help clients maintain a comprehensive, long-term perspective on their investments:

1. Use a Segmented or Bucket Approach to Income Planning

One approach that can help keep your clients financially organized is to manage assets in time segmented income buckets. This approach uses time as a risk management tool. Money that will be needed in one to three years stays in conservative liquid investments. Then, risk gradually increases as you move from short-term assets to long-term assets. Long-term assets can be positioned more aggressively for growth.

There are several ways to manage risk. But the key is to help clients understand that if a long- term bucket suffers a decline in value, there is plenty of time to make up for it. They may be less likely to make a panicked decision during a down market if they see that their shorter-term money has been safeguarded.

2. Incorporate Personal Benchmarks to Help Clients Stay Focused on Their Own Needs

Personal benchmarks can help clients stay focused on their specific needs instead of arbitrary market results. Investment proposals generally only compare an investment strategy against an index benchmark such as the S&P 500.

By helping clients identify their personal required rate of return and relating that rate of return to their investment strategies via a “personal benchmark,” our industry can help clients remain focused on what’s relevant to their needs.

3. Consider Unified Managed Accounts to Stay Organized and Stay Focused

A unified managed account (UMA) may help clients maintain focus and perspective on their overall investment strategy. It can also help you tailor investments to client needs while also streamlining your practice.

The right UMA offering can cut down on the amount of paperwork clients receive, and it can help clients see the importance of each piece of their financial puzzle. You’ll also have the opportunity to de-clutter your office, get rid of operational headaches, and free up more time to spend with clients.

Helping Clients Navigate Their Future

Through the lens of mental accounting, you can help your clients organize their investments and stay on track to achieve their long-term goals and objectives. Combining personal benchmarks, income planning, and UMA technology may help you differentiate your practice and help clients navigate their future.

Once clients see the benefit of organizing their investment strategies, they may see the benefit of working with one advisor instead of spreading their investments across multiple financial advisors. This can ultimately give you the opportunity to make a more positive difference in your clients’ lives.

Click Here to learn how Clark Capital can help you create a personalized income plan for your clients. 

  1. [1] https://cheddar.com/media/the-container-store-sales-surge-with-netflixs-get-organized-with-the-home-edit
  2. [2] Quinn, Morgan. “9 Basic Pieces of Money-Saving Advice No One Follows – But Should.” https://money.usnews.com/money/blogs/my-money/2015/03/26/9-basic-pieces-of-money-saving-advice-no-one-follows-but-should

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