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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Behavioural Finance in Practice

Which approach is most appropriate when an adviser deals with a client who shows herding behaviour by wanting to invest in whatever asset her friends are buying?

The adviser should anchor the discussion on her written investment policy statement and goals. This gives an objective test for any trend-driven idea, helping her judge whether it fits her needs instead of copying what friends are buying.

  1. AAnchor the discussion on her written investment policy statement and goalsCorrect
  2. BMatch the friends' portfolio to keep her comfortable
  3. CAvoid discussing the asset altogether
  4. DIncrease her risk limit so she can join the trend

Explanation

A documented investment policy tied to goals, time horizon and risk capacity gives an objective benchmark against which trend-driven ideas can be tested. Copying peers or raising risk limits reinforces the bias, and avoiding the topic leaves it unaddressed.

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