Financial Advice Nirvana: Achieving Behavioural Alignment

Philip Courtenay, Matt Jeffery

Part 2: Behaviours

For the second article in our three-part series, we take a look at the behavioural aspects of Financial Planning. Behavioural finance has been a key area of interest for much of the market for a number of years. However, very few firms can say they fully understand the use cases or implications, and much fewer have been able to harness the power it can bring to the adviser/client relationship. As the industry continues to evolve we expect the traditional adviser role will require a greater focus on ‘financial coaching’, creating psychological safety for clients during moments of key financial decisions. Explored here are the key themes that must be built into the business model to ensure clients’ requirements are fully reflected in the value proposition. Through our recent work at Alpha we have seen the importance of ensuring that the customer needs are understood and firms are actively looking at better ways to access, activate and engage customers through the delivery of engaging experiences.

In supporting this topic area we have obtained the views of Philip Courtenay of Applied Emotional Finance. Courtenay helps financial advice firms grow, combining business strategy and financial consumer psychology, helping highlight the value creation on both sides.

Imagine you’re standing at the front of a room full of advice business leaders.

You ask each member of the audience to put their hand up if they would consider their business to be ‘client-focused’.

What percentage of hands would you see raised? 30%? 50%? More likely, it’d be pretty close to 100% (taking into account a few who have their heads buried in their phones or thought the right answer was so obvious that it didn’t justify physical exertion…)

But in my experience, financial advice businesses are often less client-focused than they realise.

Yes, most firms make genuine attempts to put clients first, and most make strategic and operational decisions that they think are in clients’ best interests, but the reality is that commercial decisions can be easily founded upon how financial consumers should behave, rather than how they do behave.

This where behavioural and emotional finance comes in.

It helps uncover how clients think, feel and act in practice to drive better business decisions. After all, good decision-making across nearly all areas of the business relies on close alignment between what the firm does and what prospective and existing clients really want.

Let’s consider three examples:

Proposition development

There are of course a number of factors to consider in designing and maintaining a winning offering. But satisfying the needs of the specified audience arguably takes pole position. To meet these client needs though, we must have an in-depth understanding of their problems, their motivations and their barriers to engaging with your service. All too frequently are propositions targeted at certain groups, such as millennial, female or socially conscious investors, without appreciating the nuances within these segments.

For example, research highlights a number of pitfalls that the industry falls into through its masculine-orientated language being allied to male investors with higher confidence – often alienating other important segments. We also know that financial advisers tend to deliver biased advice depending on the characteristics of the recipient (or even the adviser themselves), rather than their goals or risk profile. Again, this can have a negative impact on a firm’s ability to deliver appropriate advice to different audiences.

To combat these biases at the firm level, proposition development decisions must incorporate an understanding of the typical behavioural potholes that firms can fall into. This enables the offering to be consciously positioned and delivered in a way that aligns what the real needs of the target audience, rather than those that might otherwise be assumed.

Business development

Another area of opportunity for firms to apply behavioural and emotional finance principles arguably lies in its business development efforts. There are three common discrepancies between how individuals engage with financial advice in theory and how they do in practice:

  1. There is a gap between the financial value a client receives and their perception of it.
  2. Prospective clients don’t just consider the financial costs of advice, but also the emotional costs.
  3. A prospective client’s intention to take action is distinct from their tendency to actually take that action.

However, these differences are frequently overlooked, which can constrain or even misdirect business development and marketing efforts.

For example, dwelling upon weaknesses in a prospective existing financial plan may induce financial adviser anxiety – resulting in financial avoidance. Likewise, relinquishing investment decisions may have financial and time benefits for some, but can actually reduce the sense of control that others need to feel around finances. These three principles have additional impacts for marketing communications, positioning and training.

Client engagement

Finally, and not surprisingly, the quality of your offering rests upon its delivery.

The impact of COVID-19 on financial markets reiterated the importance of managing the investor, as well as their investments. Initial market downturns prompted a mixture of reactions; indifference for a few, a sense of opportunity for some and increased anxiety for many. During these times, the only way to maintain strong relationships at scale is through a systematic process for client engagement, which must involve a clear communications approach.

Behavioural and emotional finance research helps decode how different individuals respond to these shocks and more importantly, how advisers can continue to best serve clients.

Of course, this short article is not intended to deliver a comprehensive analysis of the merits and applications of behavioural and emotional finance. However, one message should be clear; effective strategic and operational decisions made across the firm must reflect the reality of clients’ wants, needs, actions and motivations. Ensuring processes are built in accordance with a behavioural understanding of the individual is paramount.


What’s coming next?

In the final article in our trilogy, we will take a closer look at the technology and process aspects of financial advice firms and how these can be the final piece to the puzzle when it comes to creating a robust advice proposition which serves both the business and customers.

Both Alpha and Applied Emotional Finance are engaged in a number of projects on this very topic. Please do get in touch with us to find out how we can help your business improve/adapt within the context of behaviours.

About the Authors

Philip Courtenay
Founder at Applied Emotional Finance

Philip is a sought after consultant, public speaker and coach to the financial advice profession. Through his business, Applied Emotional Finance, he combines financial consumer psychology and business strategy expertise to help advice firms grow their businesses and delight their clients. In addition to his commercial interests, Philip is also an award-winning academic, having received a scholarship from the Economics and Social Research Council to undertake a behavioural finance-led PhD at King’s College, London in 2020. He also hold an MBA at Warwick Business School, focussing on marketing strategy and investor behaviour.

Matt Jeffery

Matt is a Manager in Alpha’s Insurance division in London and helps lead the Financial Advice proposition. Matt has over seven years' experience in the investment industry, having trained as a financial adviser before moving into consulting. His background gives him a unique position to help his clients and, as a result, he has built up strong expertise across the value chain. Recently, Matt has helped his clients in projects across operating model design, supplier selection, corporate strategy, M&A, outsourcing, and product and distribution strategy.