Improve the way you wield influence

We now know much more about how people’s decisions are influenced by factors other than the bare facts. Fundamentally, we have confirmed again and again that we are not infallible, calculating, unfailingly logical beings.

Acknowledgment of this truth has been particularly welcome in the sphere of finance and investment, where for decades markets and individuals have been credited with a degree of rationality far removed from reality.

Curiously, though, the implications for financial advisers have been largely overlooked.

With this in mind, we recently developed a theoretical framework for using behavioural science to improve financial advice. It is based on ‘com-b’, a well-known model for characterising behaviour change, which posits that behaviour (‘b’) stems from a combination of capability (‘c’), opportunity (‘o’) and motivation (‘m’).

By addressing each component within the context of financial advice, the framework aims to deliver services that reflect how people really think.

Capability

This can be split into two sub-components: physical and psychological. The latter, which is centred on a client’s ability to understand the advice being offered, is by far the more relevant here.

Accessibility and candour are essential. Studies have found that factors such as over-technical language can deter clients. Furthermore, there is evidence that a candid adviser who highlights a product’s weaknesses as well as its advantages proves more persuasive.

Recognising and dealing with anxiety are also key. The initial decision to save and invest is often driven by fears for one’s future security, but over time these same fears can hinder portfolio performance. Advisers can mitigate clients’ concerns by, for example, carefully choosing the frequency of investment updates.

According to research, the more regularly people are exposed to the ups and downs of their portfolios, the smaller their appetites for risk.

Opportunity

The first kind of opportunity is social, as dictated by shared values and practices. This is why, as research has shown, people’s decisions are heavily influenced by what is presented as a default option.

Accordingly, a statement such as, “Most of your colleagues follow this strategy”, is likely to carry more weight than an adviser’s personal opinion.

The second form of opportunity is physical. This relates to technology and infrastructure – the tools advisers employ to add value to the advice process. Again, it is vital to demonstrate knowledge, which is reassuring, without being unduly technical, which can be confusing and counterproductive.

Motivation

This component can be divided into reflective and automatic mechanisms. The lessons regarding the former, which involves evaluation, planning, and goal-setting, are straightforward enough.

But automatic mechanisms pose a greater challenge because they happen quickly and unconsciously. They can result from the use of heuristics – rules of thumb that allow people to cope with complicated choices – or from habits and impulses.

These forms of influences can represent powerful elements of the advice process. Advisers who fully understand them and have the skills to use them ethically and responsibly should enjoy not just a competitive advantage, but also – and perhaps more importantly – increased satisfaction among their clients.

Dr Jeroen Nieboer is a post-doctoral research fellow at the London School of Economics’ Department of Social Policy. Based on a discussion published in the Journal of Financial Services Marketing and co-authored with professors Ivo Vlaev, Paul Dolan and Steve Martin