Are you confronting clients' biases?
The Financial Markets Authority, in conjunction with the Ministry of Business, Innovation and Employment (MBIE), Treasury, the Inland Revenue Department and the Commission for Financial Capability (CFFC), has released a new white paper looking at behavioural economics.
It says there are three key barriers to good investment decisions: Preferences – clients’ emotions and psychological experiences, their beliefs, and their decision-making rules-of-thumb – the flawed short cuts investors use to assess information.
“We might assess financial advice as good on the basis of a few successful investments, even though those could reflect pure luck,” the paper says.
“We over extrapolate. We are much better at living in the present than thinking about the future. We naturally expect our current feelings, attitudes and preferences to be unchanged.”
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