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Ian McKenna: A fresh approach when mining for goals

Ian McKennaNew research into the behavioural aspects of saving will help clients identify and articulate goals more clearly

Few things are more important to a financial planner than understanding a client’s objectives, and this is an area Morningstar has been doing a lot of valuable work in lately. At recent events in London and Chicago, its head of decision sciences Ryan Murphy presented research it has conducted in order to create a process that helps consumers identify and articulate their goals more accurately.

He pointed out how people become investors to reach their financial goals.

Investors succeed when they reach those goals, and advisers succeed when their clients succeed. But the research found 25 per cent of consumers give unreliable answers when asked to identify their major financial objectives.

Morningstar’s new approach uses a choice architecture designed to make it easier to do this.

It has produced a simple goal identification worksheet that advisers can use with clients, which can be found in its recent paper, Mining for Goals – How Behavioural Nudges Can Help Investors Discover More Meaningful Goals.

Three stages
The process is made up of three stages. First, the client is asked to identify their top three financial goals. They are encouraged to do this privately, so they do not become too wedded to them at this point. They are then given a master list of common financial goals and invited to identify whether any of these are important to them. The client is then asked to write down their top three goals again.

Morningstar’s research found 26 per cent of people change their number-one goal and 73 per cent change one of their top three goals after reading the master list.

The approach mixes generative and evaluative cognitive processes. It takes less cognitive energy for people to review an existing list of goals when they have already made the effort to identify their own.

Murphy was keen to stress the importance of maintaining the three-stage process, as opposed to starting with the master list, as it is essential to get an initial reaction from the client. Indeed, leading them straight into a list of specific goals might be seen as shoehorning from a regulatory perspective.

To the future
The research is currently based on individuals only, not couples, although it is part of a much broader range of behavioural science work being undertaken by Morningstar into the value of advice.

At its US conference, it demonstrated some fascinating new online chatbots designed to help couples identify why they disagree about money, which I can see having enormous value in the future.

Murphy suggests that the best approach with a couple, in terms of the goals exercise in this piece, would be to have them go through the process independently, before comparing the results. Getting both parties equally involved in this way can achieve a stronger level of family engagement with the adviser, rather than the relationship being dominated by one partner.

Morningstar is developing further processes to help consumers establish their preferences for means and ends, for example measuring an individual’s environmental, social and governance preferences. Its My Sustainability Profile tool, which is in production, will help individuals identify their commitment to ESG and the impact they are willing to allow it to have on their investments.

Morningstar’s valuable research into the behavioural aspects of saving will play a prominent role in helping the wider market.

It is becoming increasingly clear that the risk-profiling tools currently on offer will soon be replaced by more sophisticated services, making more use of behavioural science.

Ian McKenna is director of the Financial Technology Research Centre

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