More of a coach than a bandwagon

A financial adviser’s role is traditionally seen as one of information provision, recommending tax wrappers and solutions.

Plenty of research has shown that people’s choices when it comes to their financial matters can greatly diverge from their financial reality. It’s a fact that, whether we are aware of it or not, we are all influenced greatly by emotion, context and other issues when making decisions. Behaviour is not so much thought about, it just comes about!

We can all identify with these situations

Comments down the pub or by well-meaning family members unconsciously, and sometimes consciously, affecting how we behave together. This is commonly called herd mentality – “as they have done it, then it must be right for me!” 

We will all have heard the following types of comments at some point in time:

  • “I have made a fortune out of bitcoin, you should invest.”
  • “My friend said I should buy this fund as it’s done very well.”

More and more on Social Media with the likes of TikTok, unqualified people are making financial suggestions, which can seriously influence people’s thoughts and actions. There’s a drip drip into our subconscious.

Research has shown in multiple studies that 70% of people will choose a default fund option just because it uses the word “default” on a Workplace pension. They will not consider any of the alternatives available even if there is potential for something to be more suitable for them.

One key emotion that influences your financial behaviour is anxiety and concern for your future. Evidence suggests the more frequently people check their investments the smaller their appetite for risk, but also when they start to accumulate significant assets their anxiety can be a hinderance to performance.

A financial adviser can play an important role in identifying and understanding those subconscious or conscious biases that frankly, we are all susceptible to, and help coach a client. This doesn’t mean the Financial Adviser comes across as a “know it all” but rather that the skills they have acquired in understanding what influences people throughout the advice process can ultimately help their client achieve their financial goals and peace of mind.

Categories: Updates