Financial Advisors: Here’s How Market Volatility Impacts Investor Psychology

Market volatility is a stressful reality for any investor. But when market turbulence strikes, financial advisors are in a unique position to help their clients anticipate and manage their anxiety around money. All it takes is understanding a little psychology.

And while it’s true that stock markets have improved since the recession in 2008, surveys show that investors and financial advisors still expect volatility to return throughout the next few cycles.

In fact, according to the Eaton Vance Spring 2019 ATOMIX survey, financial advisors consider managing their clients’ relationship to volatility to be one of their major concerns this year.

So what is an advisor to do? To better understand how a client might react to a volatile trend, it might help to think about their deep-rooted feelings about money and how they view their personal control of events.

Research shows that the wealthiest investors — those who make up the richest “one percent” — have a different relationship to investments than the less wealthy: They have what’s known as a heightened internal locus of control.

For the most part, humans either think that they’re in charge of what happens in their life, or they believe that life happens to them (those who believe they’re in control of their life and its outcomes have an internal locus of control).

Having an internal locus of control is associated with higher wealth, and because these people are more likely to take responsibility for the outcomes in their life, the top one-percenters are also more likely to believe in their own abilities to solve problems and achieve goals, make better investment decisions and react more calmly when volatility strikes.

Having an external locus, however, is associated with self-destructive financial behaviors.

Financial advisors can help clients move to a more centered approach by asking thoughtful questions about past financial decisions, and can assist in determining where a client’s locus of control lies.

Dr. Brad T. Klontz, an associate professor of practice in financial psychology at Creighton University Heider College of Business and the cofounder of the Financial Psychology Institute, uses what he calls “money scripts” to help understand investor behavior.

Money scripts are unconscious beliefs about money, which are developed in childhood, and drive financial behaviors as adults. Klontz considers there to be four groups: money avoidance, money status, money worship and money vigilance — and the first three are associated with lower levels of net worth, lower income and higher amounts of revolving credit.

Klontz offers questions that you can ask to determine a client’s unique script makeup.

What’s also encouraging is that, while volatility can be stressful for any investor, recent research shows that volatility can indeed lead to increased adaptability. Yale researchers found that primate brains are more actively learning when a situation is unpredictable than when the situation is easier to predict. This suggests that our brains become more engaged when facing a high-risk-high-return situation, because this is when we absorb new information and adapt for future outcomes with preferred results.

Watch our video above to see how you can leverage your clients’ psychological background to inform and build an investment strategy to help meet their goals.

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Investing involves risk, including possible loss of principal.

Diversification and asset allocation may not protect against market risk or loss of principal.

This information should not be relied upon as research, investment advice, or a recommendation regarding any products, strategies, or any security in particular. This material is strictly for illustrative, educational, or informational purposes and is subject to change.

The iShares Funds are distributed by BlackRock Investments, LLC (together with its affiliates, “BlackRock”).

Source: Financial Advisors: Here’s How Market Volatility Impacts Investor Psychology

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Jewelry Company Alex And Ani Sues Bank Of America For $1.1 Billion In Gender Discrimination Lawsuit

Alex and Ani, the Rhode Island-based charm bracelet company founded by multimillionaire Carolyn Rafaelian, alleges in a lawsuit that Bank of America, one of its lenders, is violating federal law by engaging in gender discrimination against the women-led company.

The lawsuit, filed in the Southern District of New York on Thursday, seeks $1.1 billion in damages and claims that Bank of America’s “gender bias and greed” poses an “existential threat” to Alex and Ani’s business.

According to the lawsuit, Bank of America falsely declared in December 2018 that Alex and Ani defaulted on its $170 million loan, which it took out to buy a factory, and then cut off its access to a $50 million revolving line of credit. Alex and Ani did default a few times, but Bank of America waived the default and amended their agreement, the company says. (A lender and borrower can come to an agreement to avoid a default.)

“For more than six months now, Bank of America has been both driving Alex and Ani towards bankruptcy and milking it for literally tens of millions of dollars in fees,” the lawsuit reads. “The endgame is clear: Bank of America wants the women out of power at Alex and Ani. It wants to bring back the good old days, when a male Alex and Ani CFO let Bank of America charge whatever it wanted for BofA’s putative ‘services.’”

Bill Halldin, a spokesperson for Bank of America, denies the gender discrimination allegations. He says that BoA served as administrative agent on the company’s credit facility for a group of seven banks, which have taken the appropriate steps to enforce the terms of that agreement.

Alex and Ani alleges in the complaint that after cutting off its revolving line of credit, Bank of America started charging the company for an unused revolver fee every month, increased the interest rates on all the loans, and required the company to hire and pay for a chief restructuring officer, who is male. This cost Alex and Ani over $1.1 billion in expenses, lost revenues and lost market value, the company claims.

The suit also puts forth an additional theory for its financial troubles that feels like it was cooked up by a conspiracy theorist: Warren Buffett, whose Berkshire Hathaway is the largest shareholder in Bank of America, allegedly invested, the complaint says, in a Chinese jewelry company that makes Alex and Ani knockoffs. Warren Buffett could not be reached for comment at press time.

Rafaelian, who is 52, started spiritual bracelet company Alex and Ani from her father’s jewelry factory—where her father made American flag pins and costume jewelry— in Providence, Rhode Island in 2004.

The jewelry firm, which is named after Rafaelian’s two older daughters, employs 1,500 people and distributes through 100 of its own brick and mortar stores, plus department stores like Neiman Marcus and Nordstrom. The company, which has been struggling in recent years, has been more focused on online sales lately. Still Forbes estimates that sales dropped from $550 million in 2017 to $500 million in 2018.  For calendar year 2019, revenues are expected to drop to $420 million, the company says. Rafaelian’s net worth has tumbled as well; Forbes pegged her fortune at $1 billion a year ago. Now we estimate it to be $450 million or less than half of that, based on trailing sales. Her net worth will likely fall further as sales continue to decline.

The lawsuit claims that the relationship between Alex and Ani and Bank of America was “comfortable” between January 2016 and December 2017, which is when the company’s CFO was a man. Under the male CFO, who lasted only a year, Bank of America “raided” Alex and Ani by charging bloated fees and “nonsensical” consulting arrangements and gave extensions on its credit lines, the lawsuit says. In December 2017, Andrea Ruda, a 26-year-old woman became CFO and started cutting costs and renegotiating contracts to help save Alex and Ani money. That’s when the relationship turned “vindictive, obstinate and petty,” the company claims.

In December 2018, Bank of America, which serves as the administrative agent for the group of seven banks that provides loans to Ani and Alex, sent the company a letter to inform it that it defaulted on its loan. By January 2019, Bank of America sent another letter outlining how it was hiking interest rates, ceasing its revolver credit line, and requiring that Alex and Ani hire outside consultants to help restructure the company.

During a meeting March 2019 between Bank of America’s team, which was composed of all men, and Alex and Ani’s leadership team, all women, the bankers allegedly smirked while Ruda, who has turned 28, explained how she had experience as a CFO. According to Ruda, the bankers interrupted her: “Maybe that’s true, but if you were getting surgery, would you rather have the doctor that’s done the surgery a few times, or has done it for years?”

Ruda also says that the restructuring consultant treated her like a secretary and asked her to do administrative tasks, including printing documents and booking car rides.

“It was shocking, given my role,” Ruda told Forbes.

Bank of America and Alex and Ani have had a long relationship. In 2014, Rafaelian was featured in a Bank of America ad as part of the bank’s campaign to supporting women-owned companies.

But the bank has a history of legal entanglements having to do with gender. Bank of America has settled a swath of employment-related gender bias and discrimination lawsuits over the years, with settlement fees totaling more than $210 million.

The complaint filed by Alex and Ani alleges that Bank of America has “two time-tested” values: “greed and sexism.”

After Bank of America terminated the company’s revolving line of credit in January, Alex and Ani was unable to purchase seasonal inventory, which greatly reduced its revenues so far this year and the company couldn’t pay its existing vendor bills, according to the complaint. The company says that not having the revolving line of credit had a negative sales impact of $80 million and the company’s valuation dropped by nine figures.

Bank of America spokesperson Hallidin said in a statement: “As the complaint itself notes, the company has faced serious financial challenges for nearly two years,” Halldin said. “The banks have worked closely with the company during this time. Bank of America’s demonstrated record of support for diverse businesses is well-noted and widely recognized.”

Alex and Ani’s lawyer, Harmeet Dhillon, disagrees, claiming the company’s executives were treated differently because they are women. “This is the type of thing [that] women in every industry in America have experienced and it’s 2019 and it’s beyond time for this to be done and in the past,” says Dhillon.

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I cover the world’s richest people as a member of the Forbes Wealth Team. Before Forbes, I was a staff writer at Inc. magazine, covering entrepreneurs doing business in the legal fringes of society. Before that, I reported stories that took me to the West Bank, Russia and Brooklyn


Source: Jewelry Company Alex And Ani Sues Bank Of America For $1.1 Billion In Gender Discrimination Lawsuit

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