Why getting financial advice is more of an emotional decision than financial

Originally published in FT Adviser, this article was written by Morningstar’s Global Head of Decision Sciences, Ryan O. Murphy.

Clients may not be aware of behavioural science or coaching, but it forms much of what they seek from financial advice and planning. Emotional factors play a greater role in the decision to hire an adviser than practical ones, and continue to play an essential part throughout the relationship.

Used in the right way behavioural science can enhance the value consumers derive from the advice relationship. The actions and principles involved are simple and fit naturally into adviser-client conversations.

Here we explore some of the vital roles behavioural science can play throughout the advice relationship, based on Morningstar Wealth’s long running research. This ranges from why consumers choose to work with an adviser in the first place, to why they remain with them, and how to understand not only the ‘what’ of client goals, but also the ‘why’.

The value and benefits of behavioural coaching: The emotional and financial benefits such as greater trust and engagement with long-term plans.
Identify meaningful client goals: How behavioural nudges can help clients understand, agree and stick with goals that flex with their lives over time for positive outcomes.
Protect the adviser/client relationship: How to identify and avoid seemingly small issues that can have a negative impact on both client relationships and the advice business.

It is likely that many, if not most, advisers will recognise aspects of behavioural science in their own practice. By making greater use of these and perhaps adding some structure, the positive effects for clients and business alike can be amplified.

Value and benefits of behavioural coaching

Behavioural coaching is about providing support to help clients act in their own best interests: sticking to their financial plan and making the right decisions in any financial situation. Even more important is not making wrong decisions that could prove to be damaging.

Most clients will not be aware of behavioural coaching and will simply regard it as a normal part of the advice relationship. They will not ask for it but that does not detract from the very real benefits.

Hiring a financial adviser is as much an emotional decision as a practical one. In fact, according to our research, emotional factors account for 60 per cent of decisions and financial factors 40 per cent.

This trend persists throughout the advice relationship. While financial results are clearly important, they are not the only consideration in continuing to work with an adviser.

Financial advice is underpinned by emotional factors, whether or not clients are aware of this, but tact and subtlety are essential. For example, phrases such as, ‘Helps me stay in control of my emotions’, provoked a very negative response while, ‘Helps me make financial decisions with a cool head’, scored better.

Returns are clearly important, but they are not the only factor when it comes to clients continuing their financial advice relationship. We asked advised clients to list reasons why they stay with their adviser, categorising responses across both emotional and financial factors.

The top three reasons were:

Discomfort handling financial issues: From the peace of mind that comes with working with an adviser, to avoiding managing financial issues or negative emotions when doing so.
Quality of financial advice and services: Good advice was perceived, among other things, as offering personalised services or helping clients consider options that may benefit them.
Behavioural coaching: Not articulated as such but rather helping them stay on track, providing a second opinion when needed and generally managing potentially damaging behaviour.

Trust is the basis of all good advice relationships and emotional factors play an important role here too. The top three ranked behaviours for building trust were:

‘when my adviser acts in my best interests’;
‘when I see my adviser is knowledgeable’; and
‘when I believe my adviser understands my financial goals’.

Acting in a client’s best interests can often involve making sure they do not make bad decisions. Market turbulence is a classic example. It is a normal part of investing, which they will very likely experience. Resetting client expectations in this way — and educating them on the inevitability of volatility — can help remove the fear that can in turn trigger a flight to cash in difficult times.

There is also a quantifiable advantage to clients who make more intelligent financial planning decisions. We describe this as ‘advice gamma’ and it is made up of factors including cost-effective implementation, tax management, rebalancing and taking an income in retirement.

Identify meaningful client goals

‘What is your goal?’ can be a very hard question to answer, and people often do not know or understand their financial aspirations. Simple behavioural nudges can help clients articulate their deeper goals, which are both important and achievable.

To help with this we have defined two levels of goals:

Surface goals: typical financial goals such as saving for retirement.
Deeper goals: the motivation, meeting core values and the need to lead a full life.

Deeper goals tend to be more abstract and flexible, better suited to long-term planning where circumstances and priorities change. Truly understanding client goals and what they mean helps adapt them while keeping them relevant.

A simple behavioural nudge can ease clients from one to the other, as our research found. We asked advised clients to list their goals; the result of which consisted of their surface goals.

Showing them a list of common financial goals, such as ‘stop working and do something I love’ and ‘feel secure about my finances in retirement’, before asking them to then list their goals again led to around 75 per cent changing at least one of their top three. These final goals were more personal, detailed and based around what would make them happy.

A common behavioural bias when it comes to setting goals is reflecting current top-of-mind priorities (that is, the availability heuristic) rather than those more deep-rooted ambitions.

Language and framing questions can help here, shifting the focus from the ‘what’, which tends to be more about the here and now, to the ‘why’, thinking in more abstract terms about the future. We know from our work with advised clients that those who are more future focused are generally more motivated and effective when it comes to achieving their goals.

Shedding jargon also plays a key role. For example, research finds investors were more enthusiastic about ‘a guaranteed income for life’ rather than ‘an annuity’. It is much clearer from the description how it benefits the client.

Framing questions effectively can also be beneficial. Careful listening will help you see where clients are basing their goals on their immediate concerns rather than longer-term priorities. You can then tailor questions that prompt them to consider the future.

Helping clients understand the emotional aspect of their goals can bridge the gap from surface to deeper goals. In another study we asked clients to list their goals. We then introduced a positive psychology framework, explaining that their goals would fall into six categories: positive emotion, engagement, relationships, meaning, accomplishment and vitality. When the clients then added any additional goals, we saw a real shift from surface to deeper, thanks to this additional insight.

Goals are integral to the financial planning process, providing structure, purpose and an eventual measure of success. The more meaningful the goals, the clearer the path to good outcomes.

Protect the adviser-client relationship

While it is rare for a client to part from their adviser, an unhappy client who becomes disengaged from the advice relationship can be just as much of a loss, if not more so.

This can be seen across four key measures:

trust in the adviser;
continuing to place money;
continuing to work actively with the firm;
recommending the adviser to others.

They may be using firm resources but are no longer contributing to the relationship and will not help grow the business.

Avoiding this outcome involves being aware of seemingly small annoyances that can have a disproportionate impact on clients and the relationship. Our research in this area focused on a list of 15 micro behaviours such as, ‘My adviser took more than a week to get tasks done’, and, ‘My adviser used financial jargon I did not understand’.

We mapped how often those behaviours occurred and how clients felt about them (positive, neutral or negative).

Each behaviour clients dislike had a moderate negative impact on the advice relationship. The greater the dislike the greater the impact across the four measures. Frequency, however, seems to make less of a difference. Using jargon once can be as damaging as using it at every meeting.

Jargon can be particularly damaging to relationships. Not only does it quickly turn clients off, it is also significantly erodes trust. It is a blocker to effective communication, leaving clients frustrated and suspicious.

Communication is also crucial when it comes to setting expectations. For example, a week is not a long time to complete a task in financial services, but if clients do not understand this then dissatisfaction will creep in as they feel let down.

Taking time to understand how clients feel can prevent these seemingly small issues from becoming major problems. Face-to-face may feel awkward but a post-meeting follow-up survey can help. If it is anonymous clients may be more likely to raise issues they would not be comfortable discussing.

It can also be helpful to have a checklist to look over before meetings, as a refresher, or afterwards, to reflect on any possible slips and be aware for future meetings)

AI and its potential impact on client relationships is a current concern. Our research has found that clients are positive about generative AI in certain circumstances. It must be used to free up adviser time, which can then be used to the client’s benefit — administration, research or generic marketing material, for instance.

Activities with a clear human connection — personalised recommendations or emails — but which turn out to be AI generated can be deeply damaging. Used well, and openly, GenAI can free up time for the behavioural coaching activities that are so highly valued.

These small steps can help to keep clients more engaged and the relationship mutually rewarding.

Future focus

Goal-based financial planning is about looking forward to achieving goals, not back on market performance. As we have seen, meaningful goals are based on personal happiness and financial comfort, not beating a benchmark.

Since its original publication, this piece may have been edited to reflect the regulatory requirements of regions outside of the country it was originally published in. This document is issued by Morningstar Investment Management Australia Limited (ABN 54 071 808 501, AFS Licence No. 228986) (‘Morningstar’). Morningstar is the Responsible Entity and issuer of interests in the Morningstar investment funds referred to in this report. © Copyright of this document is owned by Morningstar and any related bodies corporate that are involved in the document’s creation. As such the document, or any part of it, should not be copied, reproduced, scanned or embodied in any other document or distributed to another party without the prior written consent of Morningstar. The information provided is for general use only. In compiling this document, Morningstar has relied on information and data supplied by third parties including information providers (such as Standard and Poor’s, MSCI, Barclays, FTSE). Whilst all reasonable care has been taken to ensure the accuracy of information provided, neither Morningstar nor its third parties accept responsibility for any inaccuracy or for investment decisions or any other actions taken by any person on the basis or context of the information included. Past performance is not a reliable indicator of future performance. Morningstar does not guarantee the performance of any investment or the return of capital. Morningstar warns that (a) Morningstar has not considered any individual person’s objectives, financial situation or particular needs, and (b) individuals should seek advice and consider whether the advice is appropriate in light of their goals, objectives and current situation. Refer to our Financial Services Guide (FSG) for more information at morningstarinvestments.com.au/fsg. Before making any decision about whether to invest in a financial product, individuals should obtain and consider the disclosure document. For a copy of the relevant disclosure document, please contact our Adviser Solutions Team on 02 9276 4550.

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