Chapter 1Freedom in the Market and Advisor Responsibility

Chuck Widger

Between stimulus and response, there is a space. In that space is our power to choose our response. In our response lies our growth and our freedom.

—Viktor E. Frankl, Man's Search for Meaning (1959)

Within the securities market, investors have great freedom in that they are able to take risks through investments in exchange for the right to receive and keep interest, dividends, and appreciation. Yet, in the midst of this freedom, they experience various perils, such as volatility and subsequently, fear and anxiety. They may receive questionable advice. And ultimately, they often make costly and even devastating errors.

In the midst of the freedom of capital markets emerges responsibility. As advisors, we know our economic system is designed to create prosperity and that, properly guided, investors can successfully participate in its rewards. Thus, we have the responsibility to help investors engage with the world on the basis of clear, constructive thinking in search of positive outcomes. We have the responsibility of helping investors understand but not be overcome by emotional and behavioral pitfalls. In the words of Don Phillips, Managing Director of Morningstar, Inc., on April 8, 2014 at the Tiburon conference in New York City, “We gotta manage the behavior gap.”

This chapter examines why and how we do that, as well as how we may have fallen short on this responsibility. First, we discuss the financial ...

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