The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails

Big Bank Is Watching You

J.P. Morgan, which emerged from the credit crisis as one of the world’s most powerful banks, has long used behavioral finance. The bank has a family of mutual funds that invest according to behavioral principles, including overconfidence and anchoring. They even use information to market to clients. In 1999, the bank hired Larry Samuels, a cultural anthropologist, to study the rich. He came up with personality types that tend to be dominant among wealthy people: Wellville, Legacy, The Good Life, Unplugged, and Artisan. J.P. Morgan called those types “wealth signs.” The research was pushed out to J.P. Morgan’s brokers who asked clients questions to determine their sign. The keywords were connected to “passion points.” The bank gave brokers “cheat sheets” to collect other core client passions by asking questions—or observation.

“The contention was that investment decision-making followed the 80-20 rules: 80 percent emotion and 20 percent fact,” observed Malcolm Baker, a Harvard Business School professor in a case study he wrote in 2007 on J.P. Morgan’s adaption of behavioral finance.

The wealth signs were important parts of J.P. Morgan’s relationship with clients. Baker said the bank had even identified the “key service requirement” for each wealth sign. A broker with a “good life” client needed to make them feel important, pay attention to details, and keep them current on trends. It was also important to let good life clients talk about their accomplishments. ...