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Nudging Financial Planning Clients in the Right Direction

Joe Buhrmann October 13, 2022

You deliver a financial planning recommendation to a client—updating an outdated estate plan, for example—and months later you’re still waiting on them to follow through. So, how do you motivate that client to act in their own best interest?

Behavioral economists Richard Thaler and Cass Sunstein would tell you it’s time to apply nudge theory. The two recently created an updated edition of their bestselling book, Nudge, which explains how we can make it easier for people to make decisions through carefully considered choice architecture.

Simply put, nudges are interventions designed to persuade people to act in their best interests. Arranging the food in a cafeteria so the fruits and vegetables are at eye level is a nudge: A measure that is transparent, not misleading, and easy to “opt-out” of.

While much of Nudge talks about government nudging, Thaler has said it’s highly applicable for financial planners, when applied ethically. In fact, he believes it’s a vital part of a planner’s role. “If the main thing that a financial advisor does in a session with a client involves looking at spreadsheets, then they’re not doing their job,” Thaler told Money magazine in 2015.1 “It is as much psychology as it is finance.”

In the spirit of behavioral economics, here are a few examples of how planners can “nudge for good” and apply this knowledge in their practices.

Simplifying

One way to create successful choice architecture? Keep it simple. In the famous “jam experiment,” consumers were more likely to buy when offered six jams instead of 24—and were more satisfied with their choice.2 Even though Certified Financial PlannerTM training emphasizes creating a comprehensive plan, it’s important to remember that a list of 24 planning recommendations will likely overwhelm its recipient.

Alerts and Just-in-time Reminders

Here’s where technology and transparent nudging meet, helping clients overcome inattention due to information overload. Financial planning platforms equipped with a client portal can help you gently remind clients and keep everyone on the same page. Simplifying your reminder message and breaking it down into discrete steps also helps. If you want your client to update their estate plan, the reminder might read “call the estate attorney regarding plan update.”

Framing

This is about using words, metaphors, or even charts and graphs to enhance the persuasiveness of your message. It’s especially effective when you can connect the dots between financial tasks and the purpose that drives them, showing either the impact of action or inaction. For example, framing that task to update an estate plan as a lifetime gift to their loved ones—providing peace of mind and making life easier—might compel them to act. Alternatively, you could calculate what that outdated estate plan might cost their heirs and share that information.

Commitment Devices

One of the most powerful nudges financial advisors can employ is the deep connection they’ve (hopefully) built with a client. Serving as a client’s accountability partner is a form of a commitment device that relies on reputational stakes. People want to keep their word, so they act instead of procrastinating. Recent research has shown that Millennials, especially, are looking for an advisor who can serve in the role of coach. Nearly 40 percent of those aged 30 to 45 said their ideal advisor would act as a life coach.3 In the case of that estate plan update, you might set a meeting with the client to check in on the task’s progress and hold them accountable.

Systematizing

Today’s workplace retirement plans are the poster child for this type of nudge. Thanks in part to Thaler and fellow professor Shlomo Benartzi’s “Save More Tomorrow” concept, the idea of automatic increases in a 401(k) participant’s deferral rate that coincide with an event such as a salary increase became popularized. Similarly, encouraging your clients to make saving and investing automatic (routed directly from their paycheck) can help them reach goals faster, and with less friction.

Nudging Clients Across the Finish Line

Financial planners can take many routes to create the nudges that will work for their particular clients. Whether you motivate a client by explaining the purpose behind a financial planning task or sending a short reminder is up to you. Experiment to see what your clients are the most receptive to.

For more techniques to motivate clients, read the article Moving Clients to Action with Motivational Interviewing.

Sources:

1. Maurer, Tim. “What Your Financial Adviser Needs to Know About Your Brain.” Money, October 2015.

2. Iyengar, S., and M. Lepper. “When Choice Is Demotivating.” Journal of Personality and Social Psychology 79, 2000.

3. “Future of Client-Advisor Relationships.” AIG and MIT AgeLab, 2020.

DISCLAIMER: The eMoney Advisor Blog is meant as an educational and informative resource for financial professionals and individuals alike. It is not meant to be, and should not be taken as financial, legal, tax or other professional advice. Those seeking professional advice may do so by consulting with a professional advisor. eMoney Advisor will not be liable for any actions you may take based on the content of this blog.

About the Author

Joe serves as a Senior Financial Planning Practice Management Consultant at eMoney Advisor. With more than three decades in the financial services industry, Joe aligns his know-how and passion to help firms of all sizes increase usage, adoption, and engagement through a modern financial planning experience. He leverages his expertise and supports internal departments across the enterprise, helping Communications, Marketing, Relationship Management, and Sales. Joe attended Illinois State University, where he received his bachelor’s degree in Applied Computer Science and his MBA.

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Welcome to
Heart of Advice

a new source of expert insights for
financial professionals.

Get Started

Tips specific to the eMoney platform can be found in
the eMoney
application, under Help, eMoney Advisor Blog.