Neil Bage is a director of BE-IQ, a fintech company based in the UK that helps advisors to understand their clients. He’s a specialist on the sub-conscious behaviours that drive decisions and is renowned for bridging complex theory with real world understanding, especially in relation to decisions that involve money.
Neil explores the impact of uncertainty, fear and complexity as well as why what we say to clients and how we say it really matters.
We are all susceptible to anxiety, worry and fear - it’s in our DNA and is who we are. We don’t deal with uncertainty well. We don’t deal with complexity at all and, as fear is such a dominant emotional trait in human beings, it can create a distortion of reality. The oldest and strongest kind of fear is fear of the unknown. We are currently in the midst of a global pandemic. People are on lockdown, governments are trying to decide what the best thing to do is for their people, the economy, health, etc. Everything we are living through is shrouded with uncertainty, which creates a powerful surge of fear, hardwired into our biology.
Fear is a real or perceived immediate threat while anxiety is the expectation of a future threat or negative outcome. Falling markets and extreme volatility elicits fear. As financial professionals you need to know that your clients are experiencing these emotional states when you talk to them about money, their financial plan, the future and their retirement. When meeting with and speaking to them, don’t jump straight into talking about their financial plan as you could end up doing them a disservice. If a client comes to you in an emotional state, your first job is to get them to a place where they feel calm and safe and can move forward to make logical decisions.
Under conditions of fear, anxiety and worry, when your sympathetic nervous system is triggered, the brain shuts down or inhibits the prefrontal cortex, the part of our brain used to make decisions. As emotional creatures, it doesn’t take a great deal to trigger our sympathetic nervous system and put us into a place where making decisions becomes extremely difficult.
When we make a decision, 90% of that decision-making process happens in our unconscious mind. From processing information to determining the value to analysing whether we should be taking the decision in the first place, happens without conscious thought. Core to your role as an advisor is therefore to consider how you present the information and what you’re saying so that the end decision is right for your client. As your role is to work with your clients to achieve financial wellbeing, understanding the unconscious behaviours that drive their decisions is absolutely crucial.
Because decision making sits in our unconscious mind, it means that your clients are subjected to behavioural biases, which play out when they’re anxious or stressed. Five biases were identified as being important for financial planning and financial planning decisions and can get super-charged and become the dominant factor in decision making when a client is in a state of anxiety. Framing: We become highly susceptible to how information is presented to us when we’re anxious. Confirmation bias: We resort to our own opinions in our own views when we’re anxious. Overconfidence: We become overconfident in our abilities and knowledge because we need to make a decision. Herding bias: We do what everyone else is doing. Loss aversion: Decide we don’t want to lose any more money.
Framing is the most powerful behavioural bias where you make a decision based on only part of the message presented. As a financial planner, where this bias exists, it’s important to understand its strength and where each of your client sits, i.e. resistant or susceptible. Knowing this changes your narrative and how you deliver your financial planning advice.
The human to human relationship is core to the success of financial planning. It’s about knowing your clients and having a deep understanding of how your clients navigate the world they are in. How do they understand or compute information you present to them? You can then augment the financial planning journey with behavioural insights, because every human being is behavioural. Behaviour is the core factor behind the success or failure of a financial plan.