Ken Haman - Painel IV

Fall 2011
Words That Change Minds:

Keys to Managing Client Emotions
Kenneth Haman Managing Director, The Advisor Institute
There is no guarantee that any forecasts or opinions in this material will be realized. Information should not be construed as investment advice.
Investment Products Offered:
Are Not FDIC Insured
May Lose Value
Are Not Bank Guaranteed
For financial representative use only. Not for inspection by, distribution or quotation to, the general public.
A Different Kind of Volatility:

Understanding Client Emotions
AllianceBernstein.com
For financial professional use only. Not for inspection by, distribution or quotation to, the general public.
Never Waste a Good Crisis
Understanding Human Behavior: The Basics
Source: Natalie Angier, The Canon: A Whirligig Tour of the Beautiful Basics of Science, Evolutionary Biology: The Theory of Every Body. P. 147.
The Oldest Part of the Brain Controls Fight or Flight
Sources: George Loewenstein, Out of Control: Visceral Influences on Behavior, Organizational Behavior and Human Decision Processes (1996)
Dan Ariely, Predictably Irrational: The Hidden Forces that Shape our Decisions, 2008. pp. 89108.
and a Younger Part Controls Language and Rational Thought

Range of Potential Market Returns
Source: Neo-cortex size as a constraint on group size in primates, Journal of Human Evolution (1992), Volume 20, pp. 469493.
Taking a Closer Look: Two Very Different Structures
Language
Cause-Effect Relationships
Future and Planning
Self-Awareness & Observation
Feelings
Physical Actions
Impulsivity
Fight or Flight Instinct
What Happens When a Client Becomes Anxious or Afraid?
Three strategies can help you

manage emotional volatility
Strategy #1:
Publish Your Principles
Strategy #1: Principles Can Over-ride Natural Reactions
Good Investment Decisions
The time to get greedy is when

everyone else is fearful; the time to
get fearful is when everyone else is
greedy.
Warren Buffett
Fearful/Greedy
Regression to the Mean
Regression to the mean is one of the

most powerful forces in the universe.
Rod Smith
Good investment decisions are never

based on fear, and are never made
impulsively. Ken Haman
Principles Can Over-ride Natural Tendencies
Good Investment Decisions

Fearful/Greedy
Regression to the Mean
Time
10
Timeless Principles of InvestingYour Professional Convictions

Human beings tend to misperceive risks
Economic processes tend to regress to a mean
Investors tend to extrapolate current trends forward
The time to get greedy is when others are fearful and
the time to get fearful is when others are greedy
The investor is always exposed to risk. Investing well
is being paid properly for the risk you decide to take
Owning non-correlating assets reduces volatility risk
during most market conditions
In stock selection the business model, corporate
leadership and qualitative fundamentals matter
Derived investments tend to magnify risk in order to
increase returns
11
Defining Your Principles: Resources for More Confident Investors

Step One: Define 710 Core Principles
Look at the key investment decisions that you have made over the past two years
Step Two: Define the Principle that Informed Each Decision

At the root of each decision was a principle that guided your decision; write it down
in a sentence or two
Step Three: Refine Each Principle

Edit each principle down to a short phrase or a single sentence
Create at least seven but no more than 10 core principles for your practice
Step Four: Inoculate Your Clients with a Shared Vocabulary

Install these principles into your clients through constant repetition:
During Annual Client Reviews
When Markets Become Volatile
During Regular Market Updates
12
Strategy #2:
Provide a Point of View
13
Strategy #2: Helping Clients Make Sense of the Capital Markets
14
Assigning Labels Creates Meaning: New Labels = New Meanings

One part of the brain uses information to make sense of an investment
A different part of the brain decides to take action based on feelings
What does this mean?

What do we think is going to happen next?
What is the right thing to do?
For illustrative purposes only.

15
Changing the Way Clients Think: The Power of a Point of View

The rational brain
processes information
and makes meanings
Through constant education, your

professional Point of View can
Without a point of view about
become the perspective from which
the Capital Markets, the primitive
the client views Market behavior.
brain decides impulsively
according to instincts
The primitive brain reacts

to meanings emotionally
Over time the client

becomes less impulsive
and more thoughtful:
I know what this means!
Time
16
Providing a Point of View: Explaining Mechanisms Creates New Labels

Step One: Define 57 key aspects of the Capital Markets
What are the important Mechanisms of the Capital Markets that you monitor on an ongoing
basis? 57 will be most influential on your thinking:
Monetary Policy/Inflation
Domestic/Global GDP
Equity Valuations
Fixed Income-Global Bond Markets
Currency Market Fluctuations
Growth Investing Trends
Value Investing Trends
Large, Mid- and Small-Cap Trends
Global Investment Dynamics
Real Estate/Housing
Oil and Other Commodities
Sector Dynamics
Trends in Corporate Profitability
Consumer Sentiment
Major Political Events
Natural Disasters with Global Impact
Step Two: What are the cause-effect mechanisms involved?

Step Three: What causes are currently happening?
Step Four: For each causewhat is likely to happen next?
17
A Mechanism Describes a Meaningful Change in the Markets
US Companies (ex. Financials) Cash/Assets

8
$600 Bil.
Above
Normal
Percent
Long-Term
Average
2
60
70
80
90
00
10
Historical analysis does not guarantee future results.

Through March 31, 2011
Source: Bloomberg, FactSet, Haver Analytics, Institute for Supply Management, Standard & Poors, Thomson Reuters First Call, US Federal Reserve and AllianceBernstein
22
And Experience Over Time Suggests a Possible Future Result
Ratio of Dividend
Increases/Decreases
25
20
15
10
0
05
06
07
08
09
10
11
Historical analysis does not guarantee future results.

As of June 30, 2011
Based on the Bernstein US stock universe
Source: Standard & Poors and AllianceBernstein
23
Strategy #3:
Put it Into Practice
27
Step One: Listen Actively and Engage Language Skills
How are you feeling about things?

Say more
Get the client to speak (use language) for
several minutes
This activates the rational part of the brain
and inhibits the impulsive part
Listen attentively
Ask for more information but do not try to
address issues or concernsyour rational
ideas will not be heard or understood
28
Step Two: Engage Cause-Effect Thinking and Planning
What do you think is going to happen?

How do you think this will happen?
Get the client to think about the future, and
articulate how those frightening future
events will happen
This more fully activates the rational part of
the brain
Continue to ask for more information and
request specifics
Dont offer any alternative ideas yetthe
client is still too upset to hear you
29
Step Three: Engage the Clients Self-Awareness and Rational Thought
Is that what you think? Or, is that just

how it feels right now?
Clients do not fear what has already
happenedthey feel loss and sadness
Clients become fearful of the mental
images of what might happen
Invite the client to observe the difference
between thinking and feeling
Allow him to discover how the fears are
not based on rational thoughtsto shift
gears mentally
It still isnt time to offer a perspective
30
Step Four: Normalize and Then Provide Resources
I understand how you feelmany people

have felt that way. But, we have found
When the rational part of the brain is fully
activated a more thoughtful and less
impulsive decision can be made
The client is now able to hear and make
sense of the ideas and information you have
to offer
Only offer your insights when the client is
calm and more thoughtful
31
Review: Three Strategies for Managing Client Emotions
Publish Your Principles - Constantly

Provide a Point of View - Regularly
Put It Into Practice - When Needed
32
Important Disclosure Information
This material was created for informational purposes only. It is important to note that not
all Financial Advisors are consultants or investment managers; consulting and investment
management are advisory activities, not brokerage activities, and are governed by different
securities laws and also by different firm procedures and guidelines. For some clients,
only brokerage functions can be performed for a client, unless the client utilizes one or
more advisory products. Further, Financial Advisors must follow their firms internal
policies and procedures with respect to certain activities (e.g. advisory, financial planning)
or when dealing with certain types of clients (e.g. trusts, foundations). In addition, it is
important to remember that any outside business activity including referral networks be
conducted in accordance with your firms policies and procedures. Contact your branch
manager and/or compliance department with any questions regarding your business
practices, creating a value proposition or any other activities (including referral networks.)
AllianceBernstein and the AB Logo are registered trademarks and service marks used by permission of the owner,
AllianceBernstein L.P.
2011 AllianceBernstein L.P.
11-2462

Ken Haman - Painel IV

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Fall 2011

Words That Change Minds:

Kenneth Haman Managing Director, The Advisor Institute

May Lose Value

Are Not Bank Guaranteed

A Different Kind of Volatility:

Never Waste a Good Crisis

Understanding Human Behavior: The Basics

Never Waste a Good Crisis

The Oldest Part of the Brain Controls Fight or Flight

Never Waste a Good Crisis

and a Younger Part Controls Language and Rational Thought

Never Waste a Good Crisis

Taking a Closer Look: Two Very Different Structures

Never Waste a Good Crisis

What Happens When a Client Becomes Anxious or Afraid?

Three strategies can help you

Never Waste a Good Crisis

Never Waste a Good Crisis

Strategy #1: Principles Can Over-ride Natural Reactions

Good Investment Decisions

The time to get greedy is when

Regression to the mean is one of the

Good investment decisions are never

Never Waste a Good Crisis

Principles Can Over-ride Natural Tendencies

Good Investment Decisions

Never Waste a Good Crisis

Timeless Principles of InvestingYour Professional Convictions

Never Waste a Good Crisis

Defining Your Principles: Resources for More Confident Investors

Step Two: Define the Principle that Informed Each Decision

Step Three: Refine Each Principle

Step Four: Inoculate Your Clients with a Shared Vocabulary

During Annual Client Reviews

When Markets Become Volatile

During Regular Market Updates

Never Waste a Good Crisis

Never Waste a Good Crisis

Strategy #2: Helping Clients Make Sense of the Capital Markets

Never Waste a Good Crisis

Assigning Labels Creates Meaning: New Labels = New Meanings

What does this mean?

For illustrative purposes only.

Never Waste a Good Crisis

Changing the Way Clients Think: The Power of a Point of View

Through constant education, your

The primitive brain reacts

Over time the client

Never Waste a Good Crisis

Providing a Point of View: Explaining Mechanisms Creates New Labels

Step Two: What are the cause-effect mechanisms involved?

Never Waste a Good Crisis

A Mechanism Describes a Meaningful Change in the Markets

US Companies (ex. Financials) Cash/Assets

Historical analysis does not guarantee future results.

Never Waste a Good Crisis

And Experience Over Time Suggests a Possible Future Result

Historical analysis does not guarantee future results.

Never Waste a Good Crisis

Never Waste a Good Crisis

Step One: Listen Actively and Engage Language Skills

How are you feeling about things?