News article

Guest blog – Chris Budd: How to put behavioural knowledge to practical use

In last week’s newsletter, our guest blog was from Neil Bage. In it he described the importance of knowing which behavioural biases your clients display.

In this follow up piece, Chris Budd, Chair of the Initiative for Financial Wellbeing (IFW), talks about what to do when you do see clients display these various biases.

You might also be interested to know that Chris and Neil are presenting three webinars on Coaching With Behavioural Insight over the next few weeks. You can get more information and sign up to the webinars by clicking here.

Neil Bage’s new BEAM app and BEACON dashboard enable advisers to identify the behavioural biases and characteristics of their clients. They provide deep insight into how clients make decisions, and how they might be likely to respond in future times of difficulty and crisis.

But once you have identified those behaviours, what are you going to do with that knowledge?

The difficulty of not providing a solution

Recent events will have undoubtedly brought home to advisers the wide-ranging and crucial nature of their job in helping clients through difficult times.

The study of behavioural finance involves understanding the various behavioural biases that we all carry, and which affect our decision-making around money.

Some of these behaviours will be well known to advisers, through your experience of talking to clients over the years. We are all familiar, for example, with the client displaying loss aversion when they want to sell at a point when markets go down.

Other behaviours are much more subtle, yet nevertheless can lead to poor decision-making around money. Understanding these behaviours is, however, only half of the story. The other half involves knowing what to do when you see such behaviour being displayed by a client.

This is a particular challenge for advisers. All our lives we are taught to provide solutions, to solve problems. Tests and exams at school present a problem, for which there is a correct answer. Our professional exams also work on this basis. You learn the knowledge, then get tested on how many right answers you get.

Whose solution is it anyway?

Life is not so black and white. Without being able to predict the future, we cannot say with any certainty whether to invest now is the right thing to do, or whether to cash in after a drop is the wrong thing to do.

But there is a deeper issue at play here. When you offer a solution, how certain are you that it is based on the client’s values and beliefs, and not yours?

There are two parts to financial wellbeing. The first is the universal truths, what research shows is common to everyone in how we use money to be happy. The second is unique to what makes each of us happy.

I would suggest that understanding what makes people happy, and how humans make decisions, should be technical knowledge equally as important as understanding investment principles or pension regulations.

I would also like coaching skills to be seen as equally as important as technical knowledge. How much time do we spend improving these skills? And yet they give us the ability to understand what makes that particular client happy, and to help them better understand their own decision-making process.

Coaching with behavioural insight

Combining coaching skills with knowledge of how humans behave, therefore, is a powerful combination to truly understand your client. It will enable you to help clients work out what their money is for, and how they should be using it to make them happier, not just wealthier.

This means that the financial plans you put in place will be truly personal to each client.

But there is an extra advantage. By learning about the main behavioural biases, and then using the BeIQ BEAM app and BEACON dashboard to understand the extent to which they are present in each client, you will know how they are likely behave before they do!

It also means that when the next crisis happens, you will not only know how each client is going to react, but you will be able to use the coaching skills to help them to make the best decisions for them.

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