Wall Street Wants to Train Your Brain

If going really wild -- so out there that you wouldn’t tell your friends -- means moving from a three-month Treasury bill to a one-year certificate of deposit, you’re probably suffering from Irrational Prudence Syndrome, a non-medical but widespread condition that results from overexposure to volatile markets. IPS is characterized by extreme aversion to equities and uncontrollable urges to stuff cash into government-guaranteed mattresses, be it a CD, a Treasury security or even a checking account. Left untreated, IPS can lead to poorer investors -- and frustrated advisers. It’s a syndrome financial firms dread, and one they are determined to cure.

That may mean probing a client’s “financial personality.” Or it may involve creating “goals-based” investment buckets, with the riskiness of each pot of money customized to how crucial the goal is -- a child’s college, a vacation, retirement -- and how far off it is. Another technique to get clients to increase their investments is a form of shock therapy: Running a current photo of a client through age-progression software to show how he’d look at retirement -- gray hair, drooping jowls and all.