Challenging your client's bias
Can too much positivity create a barrier to financial planning?
Understanding behavioural bias
We’ve been researching how people make financial decisions and applied a behavioural bias lens to understand this further.
Long- term financial planning is complex, and many financial decisions involve a trade-off between the present and future. Our research has discovered 4 key behavioural biases to watch out for to help your client get the best outcome.
What is Behavioural bias?
Behavioural biases are systematic, predictable errors or influences that apply to everyone when they interpret information and make decisions. Understanding behavioural biases means you can understand how consumers make predictable mistakes when choosing and using financial products. This means that some clients may be choosing products that do not meet their needs or provide the best price or value.
What does the new FCA Consumer Duty say?
Firms must act to deliver good outcomes for retail customers. Until now, firms had to act with fairness and clarity. The new FCA Consumer Duty states that firms must have regard not just to their own actions but to the outcomes that follow. For the first time, the new regulations require you to actively use a behavioural economics approach to test your products and customer communications.
Four biases and heuristics to look for
It’s useful to be on the lookout for all potential biases but a manageable starting point is the following list of biases that commonly appear in interactions with clients.
| Name of the bias | What is it? | What to look for |
| Present bias |
The tendency to focus on the here and now and overvalue immediate rewards at the expense of long-term intentions and benefits. |
Clients may overborrow and overspend on credit cards. |
| Optimism bias |
The tendency to expect better than average outcomes and failure to plan sufficiently for negative outcomes |
Clients may overestimate their success so fail to put sufficient protection in place or plan their retirement outcome. |
| Anchoring |
The tendency to use reference points when making a decision, rather than assessing the absolute value of something. |
Clients view the first or initial information about a product or price and view all subsequent information in light of that anchor which can affect financial decision making. |
| Loss aversion |
The tendency to avoiding a loss compared to acquiring an equal value gain. |
Clients may not assess outcomes in their own right but rather as gains and losses relative to their reference point. Clients may under weigh gains and overweigh losses. |
Learn more about our research
Long-term Close Up podcast series
Dr Simon Moore discusses Optimism bias and how this can affect customer outcomes.
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.
Long-term Close Up
Explore the insights that we’ve found through our Long-term Close Up research and the behavioural drivers that sit behind the way your clients act when it comes to long-term thinking, planning and decision making.