View more on these topics

Phil Wickenden: Advisers should meet both emotional and financial objectives

Phil WickendenSometimes emotions drive client decisions so advisers need solutions that satisfy emotional and financial objectives.

As humans, we have very elaborate neural systems to address threats. In particular, the emotional circuitry that kicks in to protect us from perceived threats – the ‘fight-or-flight’ response.

But there is a very important distinction between threats in the modern world versus threats on the plains of the African savanna a gazillion years ago. Unfortunately, when we are faced with threats from the modern world, such as financial threats, that same circuitry kicks in — increased heart rate, blood pressure, and so forth.

While that response may be very helpful in protecting us from physical threats, it’s actually counterproductive in protecting us from other threats, which are much more subtle and require the use of different parts of the brain – parts that shut down in the face of extreme emotional stimulus.

Can automated risk-profiling paint the full picture?

For instance, ‘fighting or flighting’ are not the most appropriate  – nor the most productive  –  responses to the inherent risk presented by the person in front of me at the cake counter in Betty’s ‘umming and erring’ over whether to snaffle the last of the miniature Fat Rascals. Fortunately, my resolve was not tested as said patron opted for the pistachio macaroon. Risk averted, more owing to good fortune than good planning – an approach ill-suited to retirement income portfolio construction.

Since the introduction of pension freedoms, people approaching retirement, their advisers and providers are considering the most effective and efficient ways to use the flexibilities while balancing the various risks that come with this freedom of choice. As such, professional advice will be key to making sure that people are able to meet their individual financial and (importantly) emotional retirement needs.

IFS: Predicting longevity key to better retirement planning

The focus of the previous regime was based around the management of longevity risk, through annuities or capped drawdown products. The removal of restrictions places more responsibility, and consequently more risk, on individuals.

In addition to the so-called ‘big four’ risks (longevity, inflation, flexibility, and volatility) individuals and their advisers will need to consider a number of other factors.

In particular, it is expected and acceptable that sometimes emotions will drive decisions. For example, not selling the family home to trade down to release equity, or taking lower-risk options even though they give lower returns because they provide peace of mind.

During decision making, clients have competing objectives. Any solution will therefore need to satisfy a blend of both pure financial and emotional objectives, requiring a far more subtle but dynamic approach to risk and retirement income planning.

Phil Wickenden is managing director at Cicero Research


technical financial graph on technology abstract background

FCA warns advisers over platform inducements

The FCA has warned financial planners that additional services offered by their platform may be in breach of its inducement rules. While the regulator has said that competition between platforms is working well for most consumers in its market study this morning, it has warned that add-ons for advisers that are paid for by the […]

Aegon still to move £8bn Nationwide assets off Cofunds

The £8bn of Nationwide assets managed by Cofunds are yet to be moved to the new Aegon platform. After acquiring Cofunds, Aegon confirmed it would continue managing assets from Nationwide’s online investment service. Nationwide has approximately £8bn of assets managed through Cofunds’ investor portfolio service, which Aegon inherited when it bought the platform in 2016. […]


Auto-enrolment arrives but is it a done deal for small firms?

When business secretary Vince Cable told the Liberal Democrat party conference he had defeated the Tory “headbangers” who “find sacking people an aphrodisiac”, there was little doubt who he was thinking of – Adrian Beecroft. The Beecroft report, which was commissioned by the Government and published in October last year, contains a series of radical […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    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