What financial advisers know
Client context
- Some clients make apparently 'irrational' financial decisions - not obtaining sufficient insurance, or over-reacting to market cycles, or not saving sufficiently for retirement. And yet they often fail to listen to the advice that can help them.
- Even when they argree with the advice they receive, some clients still fail to implement it.
- Clients' responses can appear capricious when they complete risk profiling questionnaires or when they are asked to articulate their goals. Their responses can change dramatically and apparently unpredictably over time, and sometimes they don't do what they said they would, making it difficult for advisers to provide suitable advice.
- Psychological issues are important to understanding and overcoming these problems.
Industry context
- Existing fee models are being disrupted, making it increasingly important that advisers are skilled at building trust and demonstrating the value of their advice.
- The increasing availability of digital advice means that advisers' client engagement and coaching skills are becoming a more important point of difference.
Regulatory context
- Regulatory changes require advisers to understand behavioural finance principles - it is part of the FASEA exam, the adviser education requirements, and the adviser CPD requirements.
- And advisers also need to apply behavioural finance principles to comply with the Code of Ethics (such as in the way they communicate and understand their clients, as well as in the way they manage their own biases).
What they don't typically know
- How psychological issues can be used to understand and address specific client engagement challenges. Which specific psychological issues apply in which specific circumstances, to which types of clients, who are receiving which types of advice, in which ways?
- What specific actions can advisers take based on those psychological issues in order to improve their client engagement (including their face-to-face conversations, their risk profiling tools, their statements of advice, their powerpoint presentations and their investment reports).
- What impact these actions are likely to have on different client behaviours and, ultimately, on client outcomes.
- How much these actions can improve an adviser's client acquisition and retention.
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