It’s been interesting to see how clients have behaved financially during lockdown, and how their biases have come into play.

    There were actually quite a few of our clients who proved to be pretty relaxed and stoic during the volatility we saw in March.

    There’s probably a lot to be said for the coaching that happened beforehand with these clients, and the financial planning that reassures them they are equipped to deal with these kinds of shocks.

    And the people who have those wonderful guaranteed indexed pensions are really enjoying them right now.

    But there will be those clients that need some hand-holding.

    We’ve definitely seen some negativity bias emerging, and that focus on negative outcomes. When the markets go down, people get that sense of loss aversion, and that feeling of “Wow, this is really hurting.”

    What people feel vs what they say 

    Using behavioural insights as part of our process has helped show us how people actually feel about losing money.

    I remember one client who worked in financial services, who on paper had quite a high attitude to risk.

    They understood the mechanisms of the market, and seemed comfortable with what was involved with investing.

    Yet when they were asked questions framed around how they feel about losses not in a financial sense but in a more general way, we found they really didn’t enjoy that.

    When confronted with that, they agreed that was ‘them’ – understanding the need to take risk, but also aware that when things do wobble they would need some support.

    I wonder if that would have come out had we not objectively tested their initial answers, as there’s no doubt that people sometimes say things to us because they think that’s what they should say.

    With a more behavioural approach, it’s quite difficult for clients to try and second guess what they’re ‘supposed’ to say.

    In another case, I had a fairly young client who was a first-time investor, who had inherited money in unfortunate circumstances.

    We discovered he was subject to confirmation bias, where he’ll look for information that backs up his original view. Knowing that, it might be my job as an adviser to help him see the other side of the argument.

    This is something that’s playing out massively at the moment, as people look for articles and views that agree with their own guesses about what’s going on in the world right now.

    Adviser empathy

    At Ovation we focus on coaching, and learning the skills that enable us to really understand somebody and where they’re trying to get to. What comes up quite a lot in coaching is that it’s not about your own values as an adviser, but the client’s world view.

    The great thing about using Be-IQ’s behavioural insights tools, for example, is they can show you your adviser empathy score.

    This cross-references your views and attitudes with your client’s, so that you can see where you might be different.

    When you've got somebody in front of you who thinks like you do and has similar biases, it's easy to be able to manage that because you can see it in yourself. You can relate and you can empathise.

    When somebody is very different to you it's good to know that, and gain that understanding that for some of the things they're going through, you might not necessarily relate.

    For clients, it’s just about being aware of their likely behaviour. They can then make a judgement call about how they’d feel about losses, and whether they’d like to perhaps take less risk as a result.

    It may be they decide their wellbeing is far more important than say, retiring two years early, or whatever their goal happens to be.

    For us as financial planners, by knowing the way somebody might behave in certain circumstances, we're able to communicate to that type of person in a tailored way.

    We have to make sure that what we're saying resonates with what’s actually important to clients and how it affects them.

    Having this kind of behavioural insight and visibility to communicate with a certain sub-section of clients – to be honest, it's a game changer.

    If we know that 50 per cent of our clients act like this in a given circumstance, we can then send them a particular type of communication, because we know that's going to be really useful for them at that time.

    For good planners who have asked good open questions, and who have really got to know their clients, probably after five or 10 years, they're going to really know that person and what makes them tick.

    But a lot of the time when we're engaging with clients, we might not have that wealth of knowledge about the individual if we've not been with them through the downturns.

    It’s worth remembering that it's very difficult for any of us to know how we would behave in a certain scenario until it happens.

    The behavioural side of things is just another layer of us as advisers being able to understand someone more deeply.

    It’s something that can complement the great skills planners are using already. No one’s suggesting planners don’t know their clients, it’s just being able to know your clients that little bit more.

    Coaching, wellbeing and behaviour 

    Financial wellbeing is something that's become very popular now as a phrase.

    It's great in one respect because it means people are aware of the concept, and that awareness certainly helps engagement with the Initiative for Financial Wellbeing, a project we’re proud to be founding directors of.

    But it’s worth understanding what we mean by financial wellbeing.

    It’s about getting to a position where you’re comfortable, healthy – that is financially healthy, and having strong financial foundations in place – and happy.

    When you start to overlap coaching, behaviour and financial wellbeing, you start to really know someone. It’s probably actually less about overlap, but more that these different aspects complement each other.

    With coaching, you learn to really understand what makes someone tick, what’s their purpose and what makes them happy.

    Then you add the behavioural work that Neil Bage and others have done, that allows us as planners to understand clients at a subconscious level.

    Clients can make good decisions because they know certain biases exist, and can then ultimately work towards a lifestyle that will make them happy.

    When you combine those two together with the theories of financial wellbeing, and the client’s ability to use their money to get to a life that works for them, that I think is a really powerful combination.

    The key thing is the planner’s role in interpreting the behavioural results and turning them into something meaningful. That’s where the skill is.

    It’s a case of: “So this is you. But what now?”

    It’s all about doubling up on being human. That's where I truly believe the value is.

    Don't get me wrong, it’s important that once people know where they want to get to, the tools need to be in place to make sure that happens.

    Investing people's money properly, advice around tax planning, it’s all still part of financial planning.

    But I think there's a whole piece of work to be done before you even start going down that road. No robot in the world can replace that kind of value in my view.

    Nucleus, in partnership with Be-IQ, has produced a white paper on The role of behaviour in financial planning. You can download your copy here

    Start the discussion

    Add a comment