ALABAMA A&M and AUBURN UNIVERSITIES

Psychological Profiles in Investment Industry Can Be Misleading

Auburn, Jan. 28, 2000---Major investment firms and financial planners are using psychological profiles to determine the risk tolerances and investment attitudes of prospective clients. Such psychological profiles can be misleading for several reasons says Dr. Fred Waddell, family resource management specialist with the Alabama Cooperative Extension System.

Financial circumstances and attitudes may change considerably for the client from the time it was initially prepared, Waddell says. For example, in the months following the profile, one client received a significant raise and his wife had become employed. In another case, a client received an unexpected windfall that allowed him to pay off his debts and have additional investment funds, which changed completely his investment philosophy.

Psychological profiles themselves also may cause people to reappraise and change their attitudes, risk tolerances and investment plans. Furthermore, such profiles often cause financial advisers to notice everything the client says that supports the profile, but fail to recognize client statements, attitudes and actions which are contrary to the profile.

Brian Tracy, a nationally known sales trainer, says profiles that label people may be true for psychology, but have no place in business. Psychological profiles of people's financial attitudes, risk tolerances and investment goals may be useful as a starting point, but great care must be taken in using them to avoid the pitfalls described above. Such profiles are never as important as opening up options for clients, describing the advantages and disadvantages of each option, and allowing clients to choose the best available option.

SOURCE: DR. FRED WADDELL, Extension Family Resource Management Specialist, Alabama Cooperative Extension System (334) 844-3244