Addressing Behavioral Biases in Private Wealth Management for a Client

In the context of private wealth management, consider a client, David, a 55-year-old successful entrepreneur who has recently sold his business for a substantial sum. David is now facing challenges in constructing an investment portfolio that aligns with both his financial goals and his emotional well-being. He exhibits traits of overconfidence in his investment choices, often underestimating risks, and he demonstrates loss aversion, constantly fearing the potential for portfolio decline despite historical evidence suggesting long-term market recovery. Moreover, he wishes to leave a legacy for his children and is particularly influenced by his external social circles, often making decisions based on friends' advice rather than professional guidance.

As a private wealth manager, discuss how you would address and mitigate David's behavioral biases. Outline your approach to educating him about the implications of these biases on his investment decisions, and provide a structured framework for developing an investment strategy that accommodates both his financial goals and behavioral tendencies.