Financial Advisors

Promote Financial Well-Being Through Behavioral Science

I find myself having more conversations about the application of behavioral sciences methodologies across industries, especially in the financial services world. Financial services leaders are wondering about behavioral science applications, how they work, the investment needed and how they impact, or not, their bottom line.

Given my vantage point at the nexus of behavioral science and the financial world, it is not a hard conversation for me to have. It’s encouraging to see how industry leaders are taking a hard look at the way they do business.

So much has changed in the wake of COVID-19, including remote work, staff losses and constantly changing business opportunities. These new circumstances are forcing industry leaders to review their offerings and strategic plans from a new position.

Integrating be-sci into the financial realm

Financial services firms still have a long way to go in delivering the level of customized experiences most clients require and expect. The financial executives I’ve been speaking with readily acknowledge such. But what they are missing so far is that unique behavioral insights – assuming they are reliably and objectively gathered – can have an enduring impact on a client’s financial well-being.

Simply put, a behavioral sciences methodology, starting with a financial personality discovery, delivers a deeper understanding of how people behave and make life decisions, especially about their finances. Without this specific insight, financial advisors are basing long-term planning decisions on: (i) observations learned in a few meetings, (ii) asking a limited range of questions which are usually biased to get desired answers, and (iii) demographic data or “persona category” information.

Extracting information about a client’s long-term plans is a key part of the advisory process, as “right data in, means right data out.” Importantly, advisors should have a holistic view of each client’s financial personality. In order to be able to advise, coach, and support a client through every life and financial event – especially the unanticipated ones – advisors should be accessing significant amounts of data about clients.

Without this depth of insight, the gap between financial advisors and their clients can become difficult, if not impossible, to bridge. Or both will proceed with sub-optimal strategies and solutions, which also means achieving sub-optimal outcomes, financial and otherwise.

With the application of behavioral science principles, financial services firms can deliver experiences that improve their customers’ financial choices and decisions, and therefore their overall wellbeing.

Don’t reinvent, partner with expertise

To return to those conversations with financial executives: Intentionally applying a behavioral sciences approach at first appears too big a leap for many financial services firms. In such cases, the common denominator is that they are not seeing the larger, value-added purpose. So, internal resistance to take-over.

It’s interesting how little is known about the use of behavioral science methodologies in organizations. Many assume they need to set up a full-scale in-house behavioral sciences team and build proprietary technology. Others trawl their staff to see who has a degree in psychology.

The reality is the use of an existing expert organizations to deliver these functions for you. The market now offers validated, scientific behavioral discovery and application systems to help advisors understand how clients make financial decisions, including under pressure (a crucial element). Further, using that data, such systems provide the keys to communicate and manage each client uniquely.

We’re living through a case study

Many practice managers and financial advisors forecast remote working continuing well into the future. And permanently in some cases. A valid concern is the loss of the “personal touch” of face-to-face meetings.

The gathering and robust deployment of financial personality data mitigates this loss. In addition to revealing insights about client decision making and communication style, their emotional trigger points are revealed. This enables advisors to best navigate tailored client solutions via platforms like Zoom, Skype, or GoToMeeting.

In-room feelings and intuition lost or missed can be replaced or improved through predictive insights about how the client will behave when triggered by market or life events. Advisors that quickly see a behavioral approach will focus the planning process on what the client truly needs and desires. Trust is accelerated via clarity and enhanced communication. Results improve and the process is more cost-effective.

Best: Behavioral insight delivers data that won’t change over time. Which means the data and insight placed in advisor/client hands can pay dividends in perpetuity.

The road ahead is paved with behavioral insights

Advisory firms that adopt a behavioral sciences approach are more likely not only to have better client outcomes, but also eventually earn a greater market share. One reason for that is, through expanded access to behavioral insights, many firms grow client services and practice management opportunities.

Examples of expanded Client Services opportunities through the lens of behavioral sciences: Individual Wealth Mentoring of Clients (Behavioral Coaching), Couple Dynamics, Family Succession Planning, Family Member and Employee Talent Reviews, and Planned Giving Strategies. Similarly, some Practice Management opportunities via a behavioral sciences “plug in:” Coaching Advisors on leading clients and customizing communications, Serving Clients in Teams, Hiring the Right Talent, Advisor-Client Match and Benchmarking, Behavioralizing Big Data for Customizing Communications, Investor Suitability Management based on Advisor and Client Styles, Rogue Identification, and Practice Succession Planning. The possibilities are actually endless.

These, again, are chances to improve the quality of the firm while also growing its revenues.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Hugh Massie

As a Behavioral Finance Insights Pioneer and Identity Trailblazer, Hugh Massie empowers advisers, business leaders, families and individuals to unlock their identity in order to accelerate dramatic change and discover how unknown behaviors – which intensify through un-managed differences, money attitudes, pressure and emotions – derail performance.

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