View more on these topics

Andy Hart: Advisers are leading the charge in behavioural finance

Advisers are on the front line, dealing with humans every day, so their role in developing behavioural finance discipline is crucial

It is America in the 1970s. The US economic picture is dominated by inflation, unemployment, high oil prices and recession. Meanwhile, a small group of economists and social scientists start to question the idea that humans always make rational and predictable decisions when it comes to money.

At the time, this seems like a crazy challenge to established economic thinking. All theories assume humans are not affected by their emotions when making financial choices. But this handful of academics keep working away at this new idea. They become increasingly convinced these traditional theories do not tell the full story.

If we want to really understand how people make financial decisions, they say, we also need to consider more carefully how emotional and irrational humans can be.

These guys became the founding fathers of behavioural economics and behavioural finance.

Defining idea

Unsurprisingly, the revolutionary idea did not take off immediately. But the community soon started to grow, with behavioural thinking working its way into many other sectors, like politics, business and retail.

When one of the founding academics Richard Thaler won the Nobel Prize for Economics in 2017, it confirmed its acceptance as one of the most important and defining ideas of our era. The behavioural finance community continues to expand and develop today. I see it in my own experience. It started as a niche but there are now more and more of us every time I look.

Advisers are on the front line, dealing with humans every day, so it is no surprise they should be the early adopters, although now even some of the big asset managers are cottoning on to the insights of behavioural thinking and employing them at a more corporate level.

Daily revolution

But while the bigger corporates are certainly catching on, it is at the adviser level that the real revolution is taking place. The role of advisers in the development of the behavioural finance discipline is crucial because we are the ones single-handedly changing the way people think and act around their money. It is a job many of us relish, but that does not mean it is easy. It can also be lonely.

There are plenty of behavioural advisers out there but we tend to live something of an atomised existence.

We need to remember to keep plugged into our community. Learning from each other and sharing experiences is not just good for the advancement of behavioural thinking; it is beneficial to us as its advocates and practitioners too.

Andy Hart: Stop clients being their own worst enemy

A community for everyone

As we draw strength from this community, we continue to help it grow. It is our job to bring more people into the behavioural finance fold.

It is down to us to coach and educate our clients on the benefits of the approach, not only so they can become financially successful themselves, but so they can spread the word about its power and value to their own family and friends.

When good advice means something to people and they can see it making a difference to their lives, they then become advocates.

And when new clients are more receptive to these ideas, our job becomes easier and so it continues to grow.

The behavioural finance community is not just for in-the-know advisers; it is a community that includes the people who receive the advice too. This is what makes it so special and powerful. In fact, in this community, our clients are the most important members of all.

When you work so closely with them over many years through the significant phases and transitions of their lives, you can get to know each other very well. It is unsurprising that employing such a human approach to helping clients does not just bring them into the community but often turns them into friends as well.

From an idea born in 1970s, recession-hit America, behavioural finance has created a community that makes our profession proud.

Andy Hart is founder of Humans Under Management

You can follow him on Twitter @MavenAdviser

Recommended

2

Boris Johnson’s tax proposal “twice as good for landlords”

Boris Johnson’s proposal to raise the 40 per cent tax threshold to £80,000 would be of particular benefit to landlords, according to financial commentator Paul Lewis. The significant loss to the treasury through tax normally collected on earnings of £50,000 would be offset by a rise in the NIC upper earnings limit to the tune […]

neill macgillivray
2

Neil MacGillivray: How much tax-free PCLS is available?

Taking a tax-free lump sum when accessing pension benefits seems straightforward but protection can affect how much a client is entitled to Pension marketing material invariably makes reference to an individual’s ability to take a portion of their retirement fund as a tax-free lump sum. This pension commencement lump sum is an attractive feature when […]

Davies-Damian-Timebank
1

Damian Davies: How to ensure clients love paying your fees

Tips to help advisers move the client focus away from price and more towards value Mifid II ex-post charges disclosure means advisers must state explicitly the effect their fees have on clients’ investment returns, which could raise some uncomfortable questions. The trouble a lot of advisers are facing is the perception of need. In the […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers. Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com