It has been said before most decisions have both an analytical and emotional component, and getting the emotional part right makes the analysis easier.
The emotional side of pensions has been seen clearly in the initial reactions to the freedoms, with the focus on taking pension pots as cash lump sums rather than income. While there may be some very good planning reasons for this I suggest gut reactions may have got in the way of reasoned analysis in many cases.
So how do advisers account for the various behavioural traits and biases when taking their clients through their advice process? One of the answers is to recognise the behaviours that cause people to make poor decisions and look for ways to nudge them towards making better decisions.
The table below shows some of these behaviours and gives examples of some of the nudges. Space prevents me from looking at these in depth but the list helps to show just how many different and inter-related factors impact on the advice process.
In my experience, a good advice process is one where there is an adviser/client relationship built on trust, and a two-way exchange of information and ideas. One of the challenges is how to take this essentially “higher-net-worth model” – where there is both time and enough fee income to build an enduring relationship – and apply it to the mass market.
The mass market needs a lot of help to overcome the many behavioural factors that may cause them to make poor decisions. But while we can show advisers the techniques to nudge clients away from bad behaviours towards good ones in a way that is fully compliant and cost-effective, will the new breed of robos be able to follow?
Billy Burrows is director of Retirement Intelligence