, has found that 81 per cent of advisors now use behavioural finance techniques when talking to clients, rising from 71 per cent in 2019. Big gyrations in markets, as seen in the March equity selloff, followed by the recovery, and now the tech-led selling of recent days, are reminders of how emotion as much as hard fact can drive developments.

“We built the Behavioral Investing Institute coaching programme after nearly a decade of research, training and feedback from real advisors,” Felipe “Phil” Toews, CEO of Toews Asset Management, said. “We feel behavioural finance is an overlooked component of financial services and one that requires hands-on coaching to be truly grasped and put into practice. Now, arguably more than ever, is a time when financial advisors should be equipped with all the tools to sustain, improve and grow relationships with old and new clients. An understanding of decision-making, investor tendencies and portfolio design is a core component of what we want advisors to take away from our training.”

The BII trains advisors individually or in groups. The programme attempts to help advisors transform and differentiate their practices by becoming behavioural coaches for their clients. To achieve this, the institute assesses how behavioural guidance tools are used in changing how clients perceive and emotionally respond to different market environments. Each advisor or institution will have a behavioural finance expert to walk them through every step of the process.

The move is a way for advisors to win and retain clients and this explains much of the current momentum when newbie advisors are setting up RIAs or working out how to re-set their value propositions in a competitive environment. 

“Clients, traditionally speaking, hire a financial advisor to manage their money - not realising that person should be a behavioural coach too,” Toews’ Kullman said. “We see this as an opportunity for advisors to grow their businesses in an increasingly uncertain market environment by improving their knowledge and ability to work with clients, even in more dire situations.”

A new discipline
The discipline harnesses what is known about human psychology to understand that the decisions people make with savings, investments and spending aren’t as coolly rational and objective as one might think. Humans don’t, so the argument goes, start off in life with a mental “blank slate” but instead carry habits and tendencies that are products of millions of years of human evolution. (Some of these notions can be controversial – the field known as evolutionary psychology, drawing on ideas from Darwin and others, can carry political implications such as male/female differences.)

BF practitioners in this area generally seem to argue that the more humans understand how they think, and how they can be biased, paradoxically, the more rational their choices could be. For example, a person who knows that they have a short temper in certain situations might be more careful about avoiding such situations; a person with an addictive personality might take care to avoid getting into environments where temptations exist, and so on.

In the US, the Securities and Exchange Commission in 2010 - when memories were still raw from the financial tsunami - issued a hefty report for the Library Of Congress, entitled Behavioral Patterns and Pitfalls of US Investors. The SEC has continued to track this area. Watchdogs say investments and services must be “suitable”, but if advisors don’t fully understand how a client might panic in a financial wobble, for example, how can they advise them in a compliant way? It might be too far to say that advisors are putting customers “on the couch”, but it seems not far off. Regulators in the UK and Singapore, for example, are also looking at this area.