Plenty of studies have demonstrated the importance of behavioral coaching in financial advising, but do clients appreciate its value? In a previous post, we discussed our research into investor perspectives on the value of working with a financial advisor, and how that compared with what advisors thought investors valued about working with them.
Our findings suggest that investors underestimate the value that modern advisors provide as behavioral coaches. In fact, investors ranked the attribute, “Helps me stay in control of my emotions,” as an advisor's least valuable offering.
A new approach to discussing investor emotions
In a podcast, financial planning expert Michael Kitces discussed these findings and posited that the original phrasing of the behavioral coaching attribute may have sounded judgmental or accusatory, which could have impacted the results.
Given the importance of behavioral coaching and the impact it can have on an investor’s finances, we decided to test a few other ways of describing it. The new phrasing about investor emotions addressed the possible reasons why the original may not have resonated with people.
For example, in one version, we avoided the use of jargon. In another, we sought to avoid sounding judgmental by depersonalizing the wording. We created a total of five different versions, including the original phrasing to serve as a baseline:
- Baseline: Helps me stay in control of my emotions.
- Helps people stay in control of their emotions.
- Helps me avoid common behavioral mistakes.
- Helps me make decisions with a cool head.
- Helps protect my portfolio from excessive emotional reactions (for example, panic selling during downturns).
How respondents reacted to new language about investor emotions
This new version of the study replicated the previous one, but with one change. Each of the 1,020 participants (recruited from Amazon Mechanical Turk) was given a list of attributes and, like before, asked to rank them based on what they found most valuable when working with a financial advisor.
Everything remained the same as before, except that for this study, we randomly assigned participants to view one of the five versions of the behavioral coaching attribute. This experimental design allowed us to isolate the effects of different phrasing and determine if there are ways to make behavioral coaching, which is demonstratively valuable, more appealing to investors.
We found that, although none of the phrases made behavioral coaching the top attribute, a few did help move the needle in a substantial way, from last place to somewhere in the middle. The chart below shows the distribution of rankings among the five versions we tested, with the black dot denoting the mean ranking.
Source: Morningstar. Data as of July 2019.
Once again, we see that most investors ranked the original phrasing, “Helps me stay in control of my emotions,” very low. The depersonalized version of this phrasing, “Helps people stay in control of their emotions,” also ranked fairly low. The other three versions we tested had more success, as displayed by their more spread-out distributions, meaning that more people ranked these versions higher.
Based on its average ranking, the phrase “Helps protect my portfolio from excessive emotional reactions (for example, panic selling during downturns),” was the most effective at helping investors see the value of behavioral coaching, therefore prompting them to rank it higher in importance. This phrasing not only strategically describes behavioral coaching in a way that doesn’t emphasize an investor’s fault in behavioral mistakes, but also gives a common example to which anyone can relate.
The importance of carefully approaching investor emotions with clients
In a separate post, Kitces theorized a possible reason for investors’ aversion to behavioral coaching is that they must admit to committing behavioral mistakes in order to appreciate its value, which is inherently difficult to do.
Thus, although behavioral coaching is an extremely impactful value that advisors bring to the table, it’s a hard topic to broach with clients. Our research suggests a possible step forward when it comes to discussing behavioral coaching with clients—describing it in a way that avoids blaming the client and offers accessible examples of behavioral mistakes.