Question

Cartman was just left half of his grandmother’s estate after she died. Since he isn’t really sure what to do with his newfound wealth, he decides to work with a financial planner. As a part of the financial plan, the advisor recommends adjusting his inherited portfolio of C.D.’s and T-bills into an investment policy that more closely resembles Cartman’s goals, risk tolerance, and time horizon. Although Cartman sees how this would normally make sense, he told the advisor he preferred to keep things “as is,” because this money was his grandmother’s, and she seemed to do ok. Or in Cartman’s words, she did “cooo.” So, instead of realigning the investments to better match Cartman’s situation, he just kept things the way they were. 1) What behavior/bias is present? 2) Why is this behavior detrimental? 3) What could have been done differently, or what could be done differently next time to avoid this result?

Answer 1

1) The behavior of Financial Planner is not bias at all because as a part of the financial planning, it is his/her duty to show ways and means to its client to enhance his wealth with due safety and being risk-free. The Advisor has suggested to adjust the inherited portfolio consisting of Cumulative Deposits / Debentures and Treasury Bills (which are safe and risk-free securities) according to a investment policy which Cartman prefer and provide him good growth in wealth with due safety and being risk-free.

2) The behavior of Financial Planner is somewhat detrimental as it disturbs the inherited portfolio, which is seem to be continuous wealth generator, safe and risk-free.

3) The different behavior could be that Cartman, abiding Advisor’s suggestions, could exchange the securities into investments of his choice which could get him more yearly income, but that would also bring certain risks of no income in the diverse situations.