In the excellent book "Advice that sticks" by Moira Somers, she takes aim at the problem of financial non-adherence by which she means, people failing to follow sound advice..
Written by a neuropsychologist and financial change expert, the book examines the five main factors that determine whether a client will follow through with financial advice.
Often, whilst all parties recognise that the advice is sound and the client seems eager; and then… nothing happens! Too often, this is the experience that financial professionals encounter in their daily work. When good recommendations go unimplemented, clients’ well-being is compromised, opportunities are lost, and the professional relationship grows strained.
One aspect of the advice process in any profession is that it requires the client (or patient in a medical context) to have sufficient discomfort from their present position to require the need to make a change in an established behaviour.
For most of us, from day to day, there is no discomfort felt from not having made a will, or not putting in place an income replacement insurance or not increasing our contribution to our pension etc.
From day to day we feel virtually no discomfort so we feel no compulsion to act. Like kidney disease, the symptoms of poor financial preparation can take many years to manifest themselves.
Yet, the consequences of poor preparation can be literally catastrophic when disaster strikes. Think how many widows or widowers lives would be improved by the simple process of putting in place affordable life assurance in good time.
If I had my way, I would write the word ‘insure’ over every door of every cottage and upon the blotting pad of every public man, because I am convinced that, for sacrifice that are conceivably small, families can be secured against catastrophes which otherwise would smash them forever.
— Winston Churchill
Making our finances more efficient requires both some time and effort, change, and expense.
One of the observed human biases that we all possess is the status quo bias. What this tells us is that if we admit to ourselves that we need to make changes, it first requires that we admit to ourselves that we have made a "mistake" in other words, we could have done better if we had done something different..
Naturally this is hard to do and most people find it hard to admit to themselves that they need assistance - often until it is too late. Think about the way some people view their health as a classic example - poor diet, lack of exercise, excessive drinking and smoking are common enough, yet all are clearly "bad" for our general health.Just because something is obvious doesn't mean it is any easier to implement.
As Warren Buffett says;"investing is like dieting, simple, but not easy"
What this tells us is that "good advice" is hard to follow and even harder to implement since it requires making a change to an established behaviour. And we all know that habits are hard to break.
Our latest guide; How to choose and adviser, sets out how our service differs from that of a traditional financial brokerage
We have just commissioned a series of videos from our friends at Regis Media on the value of financial advice, so look out for those in the near future.
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