Behavioral finance can no longer be considered a fringe idea, a burgeoning concept, a field that is gaining traction among financial advisors. It is a full-fledged discipline that offers tools serious wealth management firms are using to understand and serve high-net-worth clients. For instance, Commonwealth Financial Network, the Waltham, Mass.-based independent broker-dealer, is using behavioral finance techniques to help advisors work out solutions on a range of issues, such as long-term care, for their wealthy clients. Even large international banks like ING are using behavioral finance concepts to build resources that investors and advisors can use to avert bad money management decisions. If you want to be a valuable resource for your clients, you need to be conversant with these state-of-the-art tools.

J. Richard Joyner, a managing director at Tolleson Wealth Management, a multifamily office in Dallas, is one of a growing number of financial planning professionals who have gone out of their way to build behavioral finance concepts into their business models. Tolleson Wealth Management serves 90 families whose individual net worth averages roughly $50 million. Joyner started using behavioral finance in his practice after attending a series of conference presentations on the subject; he then realized that Tolleson's approach was out of alignment with those principles.

Joyner often advised his clients about their money from an analytical standpoint. He started to educate himself, reading well-known behavioral finance books and incorporating some of their ideas into training for the staff. In one session last August, for example, Tolleson asked an advisor to convince a client to curb extravagant spending. (A facilitator took the client's role.) About 20 staffers attended. They learned to use a framing technique-showing them the future results of their decisions-to get clients to make better choices.

One of Joyner's reads, Your Money & Your Brain by Jason Zweig, explains the neuroscience of investing and why people often make horrible mistakes with money-it's physical. Joyner recalls one chapter about prediction, in which Zweig explained that individuals often see patterns that do not actually exist. The human brain, developed to survive in the wild, needs to be able to interpret signs quickly-and sometimes does so too quickly for accuracy when it comes to random, complex market activity. The human proclivity for recognizing (or creating) patterns leads investors to believe that, after three or four days of positive stock market returns, they're witnessing a new bull market. Joyner says that he didn't need to sharpen his technical expertise on financial products to become more effective as a financial planner. He did need to improve how well he understood his clients' biases and decision-making patterns, however.

lients tend to get emotionally invested in specific stock decisions. When a stock is down, for example, they try to conjure up ideal situations by saying things like "If only that stock would double, then I can offset my losses," Joyner observes. Theirs is wishful thinking, of course, and Joyner responds by asking clients a series of questions meant to dissuade them from making potentially bad decisions. "I say, 'Help me understand what is particularly fearsome to you,' or 'What are you scared of?'" Joyner says. He can usually get clients to breathe deep, calm down and take a step back from the issue.

Clients are not the only ones who may approach money management situations with the wrong perspective. Many advisors are so focused on investment management and products, Joyner complains, that they completely overlook how the client feels. Advisors tend to become overly invested in their recommendations, especially if they devoted a lot of time to preparing a stock or bond analysis. The project becomes about them. "They lose sight of the fact that it is not about them," Joyner says. "What is right for the client is the only important question."

He cites a chapter on happiness at the end of Zweig's book in which the author says that possessions have the least permanent impact on an individual's happiness. Experiences are far more powerful. "I certainly see people with more of a bent toward simplifying their lives," Joyner says. "For wealthy clients, it means they are not trying to create seven different entities to squeeze every bit of tax savings out of everything they have."

None of this means that your rich clients will swear off money and go live off the grid in the Mojave. But their emotions are close to the surface, making behavioral sophistication more important now. Sorting through a client's biases and emotions and might seem antithetical for this industry, but not when you consider that financial planning is a people-driven business. What's more, in a 2009 Gallup study of 10 companies over a one-year period, those that used behavioral economics principles outperformed peers by 85% in sales growth and more than 25% in gross margins. Customers who have a strong emotional connection will give a firm 23% more business, in terms of share of wallet, profitability, revenue and relationship growth when compared with the average customer.