Finally! A high-tech mood ring for advisers’ anxious clients

Financial advisers are always searching for ways to keep clients from investing irrationally, especially in volatile economic climates. This has surely caused sleepless nights for countless advisers.

To remedy this, many encourage their clients to adopt a goal-based approach to investing.

Clients who use this strategy, which focuses on long-term planning, are far less likely to liquidate their assets and make drastic changes to their portfolios based on short-term market fluctuations, said several advisers with whom I spoke at the recent Financial Planning Association conference in Anaheim, Calif. Such clients are also less likely to panic when the markets are down, the advisers said.

Without a doubt, heightened market volatility is making it much more difficult to deal with clients. During our casual conversation at the FPA event, advisers commiserated as they discussed their frustration with clients who insisted on holding a losing stock too long or selling a winner too early.

Tons of market research has shown that investors don’t act purely rationally. Many times their behavior is influenced by emotions, most notably fear and greed, which can compromise their ability to take an objective, factual stance.

It was evident from the conversation that managing the emotions and behavior of irrational clients is one of the toughest challenges that advisers face.

With that in mind, I asked these advisers if they had heard of a new gadget I read about called the Rationalizer, which is basically a very high-tech mood ring for investors.

Koninklijke Philips Electronics NV has teamed up with ABN Amro NV to develop a way to warn investors who are about to buy or sell stocks that they are feeling overly emotional.

The Rationalizer features an EmoBracelet and a light-emitting EmoBowl that is placed near the investor’s computer.

Here is how this gizmo works:

The user wears the EmoBracelet on their wrist, and it measures the arousal component of the user’s emotions through a galvanic skin response sensor. The EmoBracelet is synced wirelessly with the EmoBowl, which has lighted patterns to show a user’s emotional readout.

The more excited the investor becomes, the higher the skin response measured by the bracelet, which sends radio signals to the bowl.

As the user’s feelings intensify, the bowl glows yellow, orange and finally red.

When the user sees that the bowl is flashing red, it acts like an alert. It warns the user that he or she should take a break before making a decision that might be based primarily on intense emotions rather than a well-thought-out investment decision.

It basically offers what Philips calls a “mirror of emotion” to warn the person to calm down before making any irrational financial decisions.

Company officials claim that the technique is fast and can accurately detect a person’s overall emotional levels.

Paul Iske, a spokesman for ABN Amro, said in a published report that the system was favorably received by testers and has proved especially useful for men.

“Women are less emotional investors,” he said. “Men have too much attachment to the underlying assets; women don’t have that as much.”

Philips officials said that the Rationalizer is still in the conceptual stages, and they have no plans of getting the device onto store shelves in time for the Christmas selling season.

That is too bad. I am sure it would make a great stocking stuffer for advisers to give to their more emotional clients.

Jim Pavia is the editor of InvestmentNews.

Related Topics: ING Group, Just Thinking