How should an advisor manage a Passive Preserver client?

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AcadiFi · Accepted Answer

The Passive Preserver (PP) is low risk tolerance + emotional biases. Example: Ingrid Solvaag, 71-year-old widow with $5.8M inherited. Dominant biases: loss aversion, endowment, status quo, regret aversion. Advisor approach: MODERATE not educate — IPS 30-40% equity, heavy liquidity buffer...

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**Dominant biases**:
- Loss aversion — willing to accept lower returns to avoid any drawdown
- Endowment — emotionally attached to inherited stock (overweight aerospace)
- Status quo — hesitant to make any changes
- Regret aversion — scared of being blamed for a bad decision

**Advisor approach — MODERATE, don't educate**:

1. **IPS design** — target 30-40% equity, 60-70% fixed income and cash, heavy liquidity buffer (12 months expenses). Return target near inflation + 1%, not CFA efficient frontier optimum.

2. **Communication cadence** — monthly written summary with context ('your portfolio is down 2%, but you still have 13 years of income covered'). Avoid jargon. Never send raw performance reports.

3. **Concentration unwind** — the inherited aerospace position is 25% of assets. Don't force liquidation (emotional attachment); use tax-loss harvesting and a 5-year glide path to diversify down to 5%.

4. **Anchoring to goals** — reframe conversations around 'are your goals funded?' not 'did you beat the S&P?'. Show annual 'goal funding ratio' > 100%.

5. **Decision friction** — require 72-hour cooling-off before any trade > $100K. Reduces panic moves.

**What NOT to do** — do not try to 'educate' Ingrid that historical equity returns exceed bonds. This triggers anxiety and damages trust. Do not propose alternative investments (hedge funds, PE) even if theoretically improving Sharpe — she needs simplicity. Do not rebalance aggressively on down days.

For the CFA exam, a PP vignette usually has code words: 'widow/retiree', 'lost sleep', 'most important to never lose money', 'inherited'. Recommend moderation + liquidity + slow diversification.

How should an advisor manage a Passive Preserver client?

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