Investments  

Clients need an emotional connection

Philip Courtenay

Philip Courtenay

It is estimated that in 2018, 4.5m UK adults (9 per cent of the adult population) had received regulated advice in the previous 12-month period – a significant increase on prior years.

But forecasts that digital wealth propositions would be a prime source of growth in the retail advice market are yet to be realised.

In fact, recent consumer research undertaken by the FCA identified significant consumer resistance to robo-advice platforms, and acknowledged that, “worryingly, these robo-refusers may well be the very people who might need it most.”

So why are potential clients resisting digital wealth offerings? 

To answer this question, it’s important to first understand the underlying drivers of investor behaviour and how individuals make advice-seeking decisions.

In an FT Adviser article titled, “Robo-advice still has a role, albeit limited”, the author noted that: “Relationships lie at the heart of business, because investment decisions are inherently emotional, not rational.” 

This statement is supported by a growing background of research showing financial decisions extend beyond ‘rational’ factors, such as costs and convenience.

The benefits of these human relationships are often promoted by face-to-face advisers and firms with hybrid propositions.

The arguments tend to focus on the ability to interpret clients’ needs and provide a tailored service – something that has traditionally required human interaction.

However, advances in technology and the digital user experience mean this is no longer the case.

User interfaces can now be personalised at account level and AI is facilitating a deeper client understanding to improve communications and recommendations.

So why does face-to-face advice still have the edge for a large majority of consumers?

It comes down to the ability to interpret and address clients’ emotional needs - and an adviser’s ability to do this remains unchallenged.

The discipline of Emotional Finance combines psychoanalytic theory with observations of financial behaviours in individuals and markets to provide us with more insight in this area.

Understanding the role of emotion

A variety of complex emotions can surface when an investor engages with an adviser.

Financial anxiety, the need for control and willingness to trust are just a few examples.

These emotions can help guide an individual’s evaluation of their current financial position, define how they manage their financial affairs and guide whether they seek the support of a professional adviser.

Some brief examples of how these emotions are put into practice are listed below:

The need for control

Research has shown that psychological wellbeing can be improved by the perceived increase in one’s level of control of a situation, even when true control of the outcome may not be possible.

This concept can be directly translated to the inherently uncertain world of financial markets, where individuals are unable to attain ‘true control’ over investment outcomes.

In the traditional advice model, dialogue between investors and advisers can alleviate some of the discomfort caused by this lack of control. The ability to scrutinise advice provides individuals with a level of perceived control through input into the decision-making process – even where the decision itself is not challenged.