Challenging your client’s bias

Can too much positivity create a barrier to financial planning?

Having a positive outlook on life helps us to navigate uncertainty. It’s a tool that gives us the confidence to evolve and gain new experiences. But when it comes to thinking long term, being too optimistic can lead to unrealistic expectations. So, how can you help your clients stay on the right side of positivity?  

Exploring optimism bias 

A healthy dose of optimism contributes to our overall happiness and resilience. But optimism bias goes deeper than us just choosing to look on the bright side of life. It’s a cognitive bias that makes us believe that things will always work out for the best. It gives us a rose-tinted view of the world, which can make it difficult for us to see where future pitfalls may be.

Optimism bias can also impact different generations. An example of this is the age-related optimism bias in older adults, who are less likely to change their beliefs when they’re given negative information. Their optimism can distort their view of reality, especially when it comes to making financial and personal decisions.

In fact, our research* shows that 6 in 10 are confident they’ll save enough to live comfortably in their retirement. But in a rapidly changing economy, this positive outlook won’t be enough to help clients prepare for their financial future.

We’ve also discovered that 1 in 3 people* are more likely to trust their positive outlook than seek financial advice, when it comes to planning for their life goals. That’s a third of people who think they might not need to put plans in place for them or their loved ones, should the unexpected happen.  

So, how can identifying early signs of optimism bias help your clients set realistic goals?

Spotting the signs 

Recognising optimism bias in your clients can help you tailor examples to help break through their rose-tinted view of the world.

To find out if your clients have optimism bias, ask yourself: 

  1. Do they seem overly confident about their future goals and plans?
  2. Are they rooted in the present and struggling to see themselves 5, 10 or 25 years from now?
  3. Do they have plans in place if the unexpected was to happen, such as the death of a loved one or experiencing poor health?

Overcoming Optimism bias for better client outcomes

Optimism bias creates an additional barrier to long-term planning - if we can’t see the risks ahead, we can’t plan for them. For example, if we’re positive we’ll always be in good health, we might not see the need for protection solutions.

However, bringing these events to life could be the key to helping your clients put effective plans in place.

A way to challenge your client’s optimism bias and create better customer outcomes, is to show your client what they might lose. Loss aversion is the preference to avoid loses rather than to gain new things. Showing clients what they might lose, instead of gain, can make it more tangible for them.

In some cases, triggering negative bias may also be an effective tool to counterbalance optimism bias. This could be achieved by highlighting the negative consequences of short-term planning and the effect this single action might have, redirecting them to plan for a more realistic future.

Understanding your client’s bias could help you to manage their expectations and set practical long-term goals. So, they can still have a positive outlook while preparing for life’s unexpected turns.

3 ways to help overcome optimism bias 

  1. Help your clients to future plan in 5 or 10 years, should the worst happen.
  2. Older adults may benefit from looking at the financial outcomes of those in similar situations to gain perspective.
  3. Negativity bias can counterbalance optimism bias.

Read more about how to put the psychology in practise to build better customer outcomes in the expert’ interview

Learn more about our research

Understanding behavioural bias

We’ve been researching how people make financial decisions and applied a behavioural bias lens to understand this further.

Learn more

Long-term Close Up podcast series

Dr Simon Moore discusses Optimism bias and how this can affect customer outcomes.

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The psychology of family influence

Hear from Dr Simon Moore as he discusses 4 customer groups and advisers can adapt conversations for better customer outcomes.

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