Asking questions and eliciting considered, accurate responses is a key part of the financial planning process.
The order of questions, how they are phrased and the length of time an adviser spends on each can influence an outcome.
That’s why one adviser can talk to a client and get detailed, colourful insights about their lifestyle, aspirations and attitudes while another can struggle to extract meaningful information. It’s not because they’re asking different questions. The nature of the advice process, which is grounded in legislation, means advisers generally ask the same or similar questions.
The ones who get the best responses are just asking them differently. This is referred to as framing.
While an adviser’s personality and client rapport influences the quality of conversations, framing is a common technique used to guide and manage a discussion.
In an increasingly digital world, as clients complete and submit more information online, the framing of questions and propositions in emails and fact finds will also become more important.
In the study of behavioural economics and finance, the method of constructing conversations to lead people to respond in a certain way or make certain decisions is referred to as choice architecture. This term was coined by University of Chicago economist Richard Thaler and Harvard Law School professor Cass Sunstein in their 2008 book Nudge: Improving decisions about health, wealth and happiness.
According to Thaler and Sunstein, the order of questions and how information is presented influences decision-making.
For example, asking a client about their short-term goals before their long-term goals encourages short-term thinking. Asking an ‘either/or’ question that gives a client two options and pushes them to choose one may guide them to a decision that is not in their best interest. An obvious example is the decision to pay off the mortgage or invest in super.
Similarly, probing a client about investing in superannuation but glossing the subject of life insurance encourages them to prioritise wealth accumulation over wealth protection.
On the subject of life insurance, the increasing prevalence of mental illness and the rising number of mental health-related claims highlights the importance of effective framing. Traditionally, financial advisers (and much of the medical profession for that matter) have framed questions on mental health to encourage a ‘no’ response. Consider the questions: Are you depressed? Do you think about harming yourself? Those questions are framed for a closed-ended, ‘no’ response compared to open-ended questions like, do you sometimes feel anxious and stressed? Do you sometimes feel like life is not worth living?
Adding a preceding statement to normalise mental health issues is also useful for getting clients to open up. For example, since the onset of COVID-19, there has been an increase in the number of Australians feeling lonely, isolated and sad. Tell me about how you’re feeling.
Open-ended questions are more likely to garner accurate responses and create opportunities for advisers to add value.
To get more out of client interactions, an easy starting point is to design a logical, sequential process that encourages clients to spend time thinking about their most important goals first. This minimises the risk of frivolous short-term goals like overseas travel derailing conversations and assuming a higher priority than more profound goals.
It could be argued that this is the trap unadvised people fall into.
Left alone to manage their money and plan for the future, many individuals resort to, what I term, WINIWIMI or “What is next is what is most important”. If their most pressing need is to buy a car or take the family on a holiday that becomes their focus. All the while, retirement creeps closer and the benefits of compounding diminish.
Fortunately, a key benefit of professional financial advice is that it forces clients to fight status quo bias, which is basically the tendency for people to resort to ‘yeah, whatever’.
But even advised clients aren’t completely safe. In the discovery stage, clients often give vague, rushed responses. They skip questions if they feel they’re too hard, which is why the majority of fact finds are submitted incomplete.
Paper-based fact finds and editable PDFs that enable clients to choose the sections they fill in, in any order, aid status quo bias because they offer the path of least resistance.
Modern digital fact find solutions are typically more intuitive and cleverly designed to ask the right questions in the right order to maximise the chances of forms being completed.
In addition to driving practice efficiencies and making the discovery phase more meaningful, they are helping advisers meet their legal and ethical obligations including Standard 5 and Standard 8 of FASEA’s Code of Ethics.
My next column will discuss the ethics of using framing as a communication and decision-making technique. As seen in the legal profession, where lawyers are often reprimanded for leading the witness, framing should be used carefully.