A Behavioral Financial Advisor (BFA) is a financial advisor who goes beyond asset selection and offers practical advice to positively influence their clients’ saving and spending habits. This individual is motivated to craft a financial plan and grow their client’s portfolio through a keen focus on behavioral finance and investment products.
This article will define the Behavioral Financial Advisor (BFA) designation, why you should hire someone with this designation, and what it takes to earn and maintain the BFA designation.
What Is a Behavioral Financial Advisor (BFA) Designation?
The practice of behavioral finance aims to identify the psychological factors and inherent biases that impact an investor’s financial decisions.
The general theory is that investments are not always driven by rational decision-making but also by emotional decisions and errors. Financial advisors must understand each client’s unique perspective when it comes to money to make effective, long-term financial plans.
Kaplan Financial teamed up with a leadership consulting firm called think2perform to create the BFA designation and encourage well-rounded financial advice. The designation focuses on behavioral finance training to identify emotional triggers and guide clients to improve their relationships with money.
As per the Corporate Finance Institute, several biases lead to incorrect investment decisions, such as:
- Self Attribution: A tendency to attribute good outcomes to good decisions and bad outcomes to luck. For example, someone who started investing in April 2020 likely saw their portfolio perform well. This could be a factor of the overall market performing well over the last two years, but emotional investors may attribute their success to their stock-picking skills instead. The same investors may attribute their sinking portfolios in 2022 to bad luck.
- Herd Mentality: This was highlighted during the meme stock craziness of 2020/21. Emotional investors tend to follow and copy what other investors are doing. This does not always work out in their favor, as anyone who stayed invested in GameStop can testify.
- Confirmation Bias: Some investors tend to ignore information that does not conform to their previously held beliefs while irrationally believing the information that does.
- Familiarity Bias: Prevents people from investing in unfamiliar companies or industries. This can lead to a poorly balanced portfolio.
There are many other biases and emotionally driven errors that drive negative financial tendencies. The good news is that you can overcome these by working with a Behavioral Financial Analyst who can help you recognize and plan against these behavioral patterns.
BFAs can leverage several techniques to help their clients succeed in growing their portfolios. These include
- Recognizing the difference between reflexive and reflective decision-making. To make smart decisions, investors must reflect and rely on logic.
- Preparing and coaching clients to commit to decisions and control destructive urges.
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How Does a BFA Differ from Other Financial Advisors?
Advice and guidance from a financial advisor is an essential step in your financial planning journey. Financial advisors work with you to formulate intended outcomes, then create a personalized plan to meet your financial goals. A financial plan customized for you is great, but traditional financial advice often stops at the numbers.
As the name suggests, BFAs go a step further to offer value-added service by considering your behavioral patterns and emotional triggers regarding money. By understanding your relationship with money and investing, they can provide well-rounded advice and construct a plan that is more likely to bear fruit for you.
Should You Hire a Professional with a BFA Designation?
One of the most challenging parts of achieving long-term goals is managing emotions and making good decisions that align with one’s values. BFAs help clients understand how psychology and physiology can lead them to emotional decision-making. They equip their clients with the knowledge and skills required to make rational choices, whether they feel positive or negative emotions at any given time.
If compulsive habits, biases, and errors are damaging your finances, working with a BFA is best to understand and be aware of them.
Here are some benefits you can expect:
- Confidently ride out periods of volatility,
- Reduce short-term or emotional decision-making,
- A prioritized set of financial goals with identifiable progress indicators, and
- Improved financial decision-making.
What Does It Take to Earn and Maintain the BFA Designation?
A prospective BFA must complete think2perform’s online program and pass an exam proctored by a 3rd party to earn the designation.
The program combines instruction in traditional financial planning with psychology and neuroscience. The courses take about 20 to 30 hours to complete and include case studies, videos, quizzes, and exercises.
Students must complete two courses:
- Behavioral Advice and You – The course consists of core financial planning concepts and behavioral science.
- Behavioral Advice and Your Clients – The course includes advanced tools, concepts, and lessons to maximize portfolio growth by identifying habits, biases, and emotional triggers.
BFA candidates must clear the courses and the exam within 150 days of registration.
The BFA exam is online and contains 100 multiple choice questions with two case studies. It tests the applicant’s knowledge of tools and concepts necessary to incorporate behavioral financial advice in their portfolio. Candidates are required to score at least 80% on the exam as a passing grade for the designation.
To maintain the BFA designation, one must complete 20 hours of continuing education (CE) courses and pay a $99 renewal fee every two years. In addition to think2perform’s sponsored content, designees can accrue continuing education credits by participating in the CE requirements for other designations.
About the Author
Ash & Pri
Ash & Pri are the founders of AshandPri.com, where they empower readers to make smart money decisions across all aspects of life.
After achieving their FIRE goals in their 30s, they launched their blogging business in late 2021 and scaled it up quickly to generate a consistent income within a few months.
You can find their expert financial advice & tips featured on sites like Forbes, GoBankingRates, Apartment Therapy, MSN, and more.