Revealing behavioural characteristics and what this means for communication and service

In the final module of this 3-part series, Neil Bage, director of behavioural insights at BE-IQ, a UK-based fintech company, explores how a client’s financial planning decisions are impacted when invisible behavioural biases unconsciously interact with each other and what we as advisors can do to help them to make decisions that ultimately deliver financial wellbeing.

When biases collide

In the financial realm, confirmation bias, framing bias and probability neglect bias often occur together in the way that clients interpret the information you present and in the way they navigate the world where they are absorbing information all the time.

Confirmation bias is where clients interpret information that only aligns to their existing beliefs or views and ignore anything that could prove them wrong. With confirmation bias, clients tend to arrive with pre-loaded views and opinions about many things, which could include an opinion on what they believe is the best investment solution or retirement plan for them. As an advisor you need to challenge your client’s views and opinions and get to the bottom of the source of their views and opinions to establish if it is rooted in fact and evidence.

Framing bias is how clients make a decision based on the way information is presented or framed as opposed to the facts themselves. You need to make sure that the narrative you give clients is complete to avoid framing bias. Most people are susceptible to negatively framed biases, so you need to work with your clients to go beyond their emotions and not allow the negative frame to dominate the way they are thinking. People have a natural default to take information on face value so you need to ensure you provide all the relevant information in order for them to make a decision.

Probability neglect is a person’s tendency to disregard probability when they are unsure about a decision and therefore violate ‘normative’ rules of decision making. It’s important to remember that your financial planning conversations are about unknown outcomes and are therefore about the chance of things happening. Low probability events are easily and often overemphasized and vice versa so make sure that your clients understand and appreciate the difference between absolute risk and relative risk.

Segmentation by behavioural characteristics

The three biases above combine and impact how a person perceives and therefore reacts to news, views and information. Behavioural biases should not be seen as good or bad, but rather human factors that make us who we are and shape how we navigate the world in our own unique way. That’s why segmenting clients by behaviour makes sense. When a client comes to see you there is always lots going on inside their head, which is invisible. Part of the role of a financial planner is to help clients understand this, cut through the noise and arrive at an informed, evidence-based decision.  The best way to do this is to augment the process with behavioural insights, because then you really get to know who is in the room with you and how you can continue to interact with them to ultimately deliver financial wellbeing. Segmenting your clients by behavioural characteristics better reflects your client and your relationship with them. It changes how you engage with them in terms of your verbal and written communication and your engagement strategy. Segmenting also enables you to see how behavioural characteristics impact a person’s judgement, decision management, composure, etc. and this is what changes the narrative.

You now have the opportunity to see how you can add behavioural insights into your business to enhance the service that you already deliver and how that can change the dynamic and the relationship between you and your clients.

In the final module of this 3-part series, Neil Bage, director of behavioural insights at BE-IQ, a UK-based fintech company, explores how a client’s financial planning decisions are impacted when invisible behavioural biases unconsciously interact with each other and what we as advisors can do to help them to make decisions that ultimately deliver financial wellbeing.

When biases collide

In the financial realm, confirmation bias, framing bias and probability neglect bias often occur together in the way that clients interpret the information you present and in the way they navigate the world where they are absorbing information all the time.

Confirmation bias is where clients interpret information that only aligns to their existing beliefs or views and ignore anything that could prove them wrong. With confirmation bias, clients tend to arrive with pre-loaded views and opinions about many things, which could include an opinion on what they believe is the best investment solution or retirement plan for them. As an advisor you need to challenge your client’s views and opinions and get to the bottom of the source of their views and opinions to establish if it is rooted in fact and evidence.

Framing bias is how clients make a decision based on the way information is presented or framed as opposed to the facts themselves. You need to make sure that the narrative you give clients is complete to avoid framing bias. Most people are susceptible to negatively framed biases, so you need to work with your clients to go beyond their emotions and not allow the negative frame to dominate the way they are thinking. People have a natural default to take information on face value so you need to ensure you provide all the relevant information in order for them to make a decision.

Probability neglect is a person’s tendency to disregard probability when they are unsure about a decision and therefore violate ‘normative’ rules of decision making. It’s important to remember that your financial planning conversations are about unknown outcomes and are therefore about the chance of things happening. Low probability events are easily and often overemphasized and vice versa so make sure that your clients understand and appreciate the difference between absolute risk and relative risk.

Segmentation by behavioural characteristics

The three biases above combine and impact how a person perceives and therefore reacts to news, views and information. Behavioural biases should not be seen as good or bad, but rather human factors that make us who we are and shape how we navigate the world in our own unique way. That’s why segmenting clients by behaviour makes sense. When a client comes to see you there is always lots going on inside their head, which is invisible. Part of the role of a financial planner is to help clients understand this, cut through the noise and arrive at an informed, evidence-based decision.  The best way to do this is to augment the process with behavioural insights, because then you really get to know who is in the room with you and how you can continue to interact with them to ultimately deliver financial wellbeing. Segmenting your clients by behavioural characteristics better reflects your client and your relationship with them. It changes how you engage with them in terms of your verbal and written communication and your engagement strategy. Segmenting also enables you to see how behavioural characteristics impact a person’s judgement, decision management, composure, etc. and this is what changes the narrative.

To listen to this conversation, go to Nedgroup Investments Insights on Apple Podcast, Google Podcast and Spotify.