A recent survey of several hundred advisers and para-planners conducted by Behavioural Finance Australia in conjunction with one of the major institutions highlighted several opportunities for advisers to help clients make better decisions. One was by appropriately limiting the choices presented to clients.
Choice offers a paradox – more choice seems attractive, but when it comes to making a decision it can lead to complexity, anxiety and regret. Behavioural finance research shows that we often make better financial decisions when presented fewer choices.
Of the eight behavioural principles we presented to advisers and paraplanners, limiting choices was a simple one that many saw an opportunity to implement more of. Of course, offering fewer choices needs to be consistent with clients’ best interest.
It doesn’t mean railroading the client into something that doesn’t fit their goals and objectives. It doesn’t mean removing client choice. But where the adviser is genuinely acting in the best interest of the client, it can lead to better client decisions and better outcomes for both the client and adviser.
Advisers who participated in the capability day sessions saw opportunities to apply the principle in a number of ways across the advice process. Presenting fewer clearly articulated value propositions to referral partners can potentially facilitate more referrals, for example. Other opportunities to limit choices included in setting client meeting times, or in presenting alternative strategies, product implementation options and on-going service arrangements.
As we know, financial choices are often complex. They often require dealing with uncertainty and ambiguity, or making trade-offs over time. In this context, behavioural research shows people often make no decision at all, or fall into a number of common decision-making traps.
To help clients navigate complexity, in addition to limiting choices, advisers can facilitate easy comparisons between options. There are avenues to use this type of thinking when presenting complex choices between risk insurance policies, for example.
Through a survey question that was framed slightly differently for each of two groups, advisers revealed that they too are impacted by some of these effects. The amount of fees advisers said they would consider paying a third party was 14% higher when they were presented with options that facilitated an easy comparison – even though the two questions were logically identical.
The next step is to make sure this thinking get embedded in client conversations, processes and documentation.