Expert: Fabrizio Zumbo, Vanguard Facilitator: Don Wild, Wild Ochre Consulting
Headlines:
- Behavioural coaching plays a crucial role in improving client outcomes, with Vanguard's Adviser Alpha framework estimating it contributes 1.5% annually to client returns.
- Overconfidence and loss aversion are key behavioural biases that significantly impact investment decisions.
- Deep discovery and early behavioural coaching conversations build stronger client relationships and prepare clients for market volatility.
- Despite the rise of AI, behavioural coaching remains a uniquely human skill, critical for long-term advisory success.
Discussion points:
Introduction to Behavioural Biases in Financial Advisory
Behavioural biases such as overconfidence and loss aversion were explored, with references to the FCA’s Consumer Duty guidance highlighting their significance in advisory services.
Vanguard’s Advisor Alpha Framework
Vanguard's research estimates that behavioural coaching adds approximately 1.5% to annual client returns, emphasising its impact as one of the most valuable aspects of financial advice.
Overconfidence and Loss Aversion Biases
Examples highlighted how these biases lead to suboptimal investment decisions, such as excessive trading or panic selling during downturns, which erode long-term portfolio performance.
Behavioural Coaching Frameworks
Two practical frameworks were introduced to help advisers guide clients effectively:
- The ‘Three Ps’ focuses on Planning, Positivity, and Productivity.
- The ‘Three As of Behavioural Coaching’ emphasises Assessing, Addressing, and Auditing client behaviours.
Deep Discovery and Early Engagement
Engaging clients in discussions about their goals, emotional responses to market events, and priorities early in the relationship fosters trust and prepares them for future volatility.
Impact of Behavioural Coaching on Outcomes
Scenarios demonstrated how clients who stayed invested during market downturns, such as the COVID-19 pandemic, benefited compared to those who moved to cash.
AI in Advisory Services
While AI tools are being explored for tasks like meeting notes and client interaction analysis, behavioural coaching remains inherently human and central to building trust.
Participant Experiences
Advisers shared challenges in systematising behavioural coaching and ensuring its value is tangible, while others highlighted its intuitive application in experienced advisory practices.
Key takeaways:
- Behavioural coaching is a cornerstone of effective financial advice, significantly enhancing long-term client outcomes
- Advisers should engage clients early in deep discovery conversations to align on goals and prepare for market volatility
- Practical frameworks like Vanguard’s ‘Three Ps’ and ‘Three A’s’ provide structured approaches for managing client behaviours
- Maintaining an audit trail of decisions during volatile periods can demonstrate an adviser’s value over time
- AI offers potential support for routine tasks but cannot replace the uniquely human skill of behavioural coaching
