When I’m planning a financial portfolio for a client, I consider a number of different factors including market influences; family make-up; current portfolio – and even behavioural clues.

Seriously? Yes.

Decisions aren’t made in isolation of the real world. And the decisions we make as clients and advisors doesn’t necessarily follow a pre-set rational pattern that traditional models, strategies and policies assume.

In fact, if you really think about it, we are often neither rationale nor deliberate in our decision-making process – but emotional and intuitive.

Enter Behavioural insights (Bi) an inductive way of making decisions using a combination of psychological and behavioural research.

Behavioural insights recognizes how people actually behave versus how people are supposed to behave.

How does it help investors?

By providing us with tools to help identify behavioral patterns that can adversely affect your financial future. Don’t worry, it’s not psychoanalysis. It’s just one more helpful tool in my investment toolbox that helps me provide you with the best financial advice I can.

Bi is really interesting.

Consider some of these key behavioural concepts – and these are just a few.

  • Anchoring

Ever get stuck on a point? Or perhaps a number? Like 50% is a passing grade.

That’s anchoring. It refers to those times when an initial piece of information becomes the unintended reference point that influences future value judgements.

For example, if you were presented with an investment package with hypothetical rates of return of 6%, 10%, 14% you might automatically assume that 10% represents a medium return, which might not be the full picture.

  • Confirmation bias and belief bias

Confirmation bias describes automatically looking for information that supports our beliefs or confirms our views. Belief bias on the other hand, is behaviour that dismisses information that challenges our core beliefs and value system.

This often happens with financial plans. As an investment document it can provide information that is often difficult for clients to accept or conflicts with what they believe to be happening.

  • Status quo bias and inertia

There are advantages to staying loyal to a certain product or service for many years. But there is merit to always reviewing and ensuring that your investment portfolio has all the best options.

But as we all know, change is difficult. There have been times with even the most enticing incentives or compelling evidence, clients can be unwilling to change.

  • Loss aversion

Everyone remembers a loss, but almost everyone forgets a gain. And Behaviour instincts states that there are important reasons to pay attention to how a client views loss.


Because a high level of loss aversion can lead to only accepting the status quo. It’s easier to stay put over suffering another loss, even with other securities.

  • Herd behaviour

Trust me, no one should automatically purse a ‘hot tip’ from Uncle Mervin. And Uncle Mervin can make a pretty good case.

All clients (and investors too) are easily influenced by others, and this is where second sober thought comes into play.

As your financial/investment planner, it’s important that I review every hot tip, with careful consideration. This is where I take into account all these factors from your behaviour to your values to your risk tolerance as a guideline to judge the hot tip, is the best option for you.

  • Choice overload

Some days choosing a TV channel can be overwhelming. And it’s scientifically proven that people are only able to effectively digest and assess a small number of well-understood options – particularly when they are complicated.

When faced with a large number of choices, I’ve seen clients surrender to what’s known as decision fatigue that can lead to choice paralysis. And it all leads back to clients not willing to change their behaviour.

  • Overconfidence

On occasion a client can be confident about their personal situation and particularly in planning for negative events.

However, when clients do underestimate their likelihood of becoming ill and finding themselves under insured or not having enough savings for retirement, they also find themselves in financial trouble.

Interesting, wouldn’t you say?

And that’s just a few of the behaviours identified by Bi. There’s framing, disposition effect, familiarity bias and short-termism.

As I dig deeper into Bi and how it helps us on our investment path, I will be sharing it on my blog.

Ready to get started on your financial road map?
Give GWF a call, we’re here to help.

Danny Carestia