At CIFA 2019, Sanjay Sapre, President, Franklin Templeton shared insights on tailoring advisor – client conversations such that the context of the conversation shifts from portfolio performance and planning to effective nudges about the client’s emotions and fears. According to Sanjay, by tailoring their conversations, advisors could create an environment where the client makes the choices the advisor wants him to make while leaving all options open for him.
Sanjay began the session by clarifying that nudge is not force. “It is helping clients make choices that you want him to make,” he said. He gave a few examples of the industry using nudges to influence better investment behaviour among clients.
One example was of a perpetual SIP. While a client need not opt for it but if the client opts for it he is unlikely to stop it as a perpetual SIP is a nudge against inertia. That is, in case of a fixed term SIP, a client may not renew the SIP due to inertia. However, in case of perpetual SIP he has to make efforts to stop the SIP, this nudges him to stay invested for longer.
Sharing research findings Sanjay revealed that while investors know that they want to invest for their financial goals, often they are driven by fear and greed and end up taking unwise financial decisions. Typically, investors are greedy wanting to take more risk in bull markets and fearful in volatile markets. In such scenarios explaining to them standard concepts like ‘volatility decreases as holding period increases’ may not convince them. Instead, he urged advisors to use the power of nudge to guide clients to make better investment choices.
One way to nudge clients is to remind the client why he had started the investment. In case your client’s SIP is in red and say he is saving for his son’s medical education, then ask him how he is planning to save for his son’s medical college fees if he stops his SIP now, said Sanjay. Such conversations nudge the client in continuing his investment without you instructing him to do so.
Sanjay acknowledged that it might not be possible for advisors to create an extensive financial plan identifying his goals for every SIP investment. Instead, he advised IFAs to simply ask clients their investment goal. Sanjay feels that clients are often well aware about why they are investing their money.
Another nudging tactic suggested by Sanjay was using social proofing. According to Sanjay, we all are social creatures who want to be in line with the majority and advisors can use this to nudge clients in the right direction. He shared a few sample messages that advisors could send to their clients during volatile markets:
- Join five million people who did not stop their SIP and benefit from the power of compounding
- We have seen this volatility before; last time one of our clients who was investing for his son’s education continued his investment amidst volatile markets. You can see how much his portfolio has grown now. However, another client panicked and redeemed his investments, his corpus is significantly lower now
In short, Sanjay, advised the audience to move the conversations away from portfolio and performance to outcomes. He reminded advisors that often investor returns were lower than investment returns owing to investor behaviour. Advisors could influence clients to take better decisions using the power of the nudge.