Skip to main content

How behavioural science can improve financial advice services

Journal of Financial Services Marketing volume 20, pages 74–88 (2015)Cite this article

Abstract

Evidence from the behavioural sciences, notably economics and psychology, has profoundly changed the way policymakers and practitioners view expert advice to consumers. In this article, we take stock of the behavioural science evidence on financial advice and explore its implications for the profession. We organise the evidence in a comprehensive theoretical framework that also serves a practical purpose: the design of behaviour change interventions. We suggest various ways in which financial advisers can use the insights from behavioural science to improve the take-up and effectiveness of their advice. Finally, we discuss ethical and practical considerations for the financial advisor wishing to put behavioural science knowledge to use.

This is a preview of subscription content, access via your institution.

Access options

Buy single article

Instant access to the full article PDF.

USD 39.95

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Figure 1

References

  • Anagol, S. and Gamble, K.J. (2013) Does presenting investment results asset by asset lower risk taking? Journal of Behavioral Finance 14 (4): 276–300.

    Article  Google Scholar 

  • Barlow, D.H. (2004) Anxiety and its Disorders: The Nature and Treatment of Anxiety and Panic. London: Guilford Press.

    Google Scholar 

  • Bateman, H., Eckert, C., Geweke, J., Louviere, J., Satchell, S. and Thorp, S. (2014) Financial competence, risk presentation and retirement portfolio preferences. Journal of Pension Economics and Finance 13 (1): 27–61.

    Article  Google Scholar 

  • Behavioural Insights (2014) EAST: Four Simple Ways to Apply Behavioural Insights. London: Behavioural Insights.

  • Bergstresser, D., Chalmers, J.M.R. and Tufano, P. (2009) Assessing the costs and benefits of brokers in the mutual fund industry. Review of Financial Studies 22 (10): 4129–4156.

    Article  Google Scholar 

  • Beshears, John, Choi, J.J., Laibson, D., Madrian, B.C. and Milkman, K.L. (2011) The Effect of Providing Peer Information on Retirement Savings Decisions. Cambridge, MA: National Bureau for Economic Research. NBER Working Paper no. w17345.

  • Bhattacharya, U., Hackethal, A., Kaesler, S., Loos, B. and Meyer, S. (2012) Is unbiased financial advice to retail investors sufficient? Answers from a large field study. Review of Financial Studies 25 (4): 975–1032.

    Article  Google Scholar 

  • Bodie, Z., Kane, A. and Marcus, A.J. (2011) Investments and Portfolio Management. New York: McGraw-Hill.

    Google Scholar 

  • Brown, J.R., Kling, J.R., Mullainathan, S. and Wrobel, M.V. (2008) Why Don’t People Insure Late Life Consumption: A Framing Explanation of the Under-Annuitization Puzzle. Cambridge, MA: National Bureau for Economic Research. NBER Working Paper no. w13748.

  • Bryan, G., Karlan, D. and Nelson, S. (2010) Commitment devices. Annual Review of Economics 2 (1): 671–698.

    Article  Google Scholar 

  • Bursztyn, L., Ederer, F., Ferman, B. and Yuchtman, N. (2014) Understanding mechanisms underlying peer effects: Evidence from a field experiment on financial decisions. Econometrica 82 (4): 1273–1301.

    Article  Google Scholar 

  • Campbell, J.Y. (2006) Household finance. The Journal of Finance 61 (4): 1553–1604.

    Article  Google Scholar 

  • Canner, N., Mankiw, N.G. and Weil, D.N. (1997) An asset allocation puzzle. American Economic Review 87 (1): 181–191.

    Google Scholar 

  • Chalmers, J. and Reuter, J. (2012) What is the Impact of Financial Advisors on Retirement Portfolio Choices and Outcomes? Cambridge, MA: National Bureau for Economic Research. NBER Working Paper no. w18158.

  • Cialdini, R. (2007) Influence: The Psychology of Persuasion. New York: Harper Business.

    Google Scholar 

  • Ciccotelo, S.C. and Wood, R.E. (2001) An investigation of the consistency of financial advice offered by web-based sources. Financial Services Review 10 (1): 5–18.

    Article  Google Scholar 

  • Del Guercio, D. and Reuter, J. (2011) Mutual fund performance and the incentive to invest in active management. Hong Kong: HKUST Business School.

  • Dolan, P., Elliott, A., Metcalfe, R. and Vlaev, I. (2012a) Influencing financial behavior: From changing minds to changing contexts. Journal of Behavioral Finance 13 (2): 127–143.

    Article  Google Scholar 

  • Dolan, P., Hallsworth, M., Halpern, D., King, D., Metcalfe, R. and Vlaev, I. (2012b) Influencing behaviour: The mindspace way. Journal of Economic Psychology 33 (1): 264–277.

    Article  Google Scholar 

  • Dolan, P. and Metcalfe, R. (2012) Feelings and Finances: The Role of Affect in Behaviour Related to an Online Financial Health Check. London: Money Advice Service. Money Advice Service Working Paper.

  • Duflo, E. and Saez, E. (2003) The role of information and social interactions in retirement plan decisions: Evidence from a randomized experiment. Quarterly Journal of Economics 118 (1): 815–842.

    Article  Google Scholar 

  • Engström, S. and Westerberg, A. (2003) Which individuals make active investment decisions in the new Swedish pension system? Journal of Pension Economics and Finance 2 (3): 225–245.

    Article  Google Scholar 

  • Gigerenzer, G. and Todd, P.M. (1999) Simple Heuristics that Make us Smart. Oxford: Oxford University Press.

    Google Scholar 

  • Gino, F. (2008) Do we listen to advice just because we paid for it? The impact of advice cost on its use. Organizational Behavior and Human Decision Processes 107 (2): 234–245.

    Article  Google Scholar 

  • Gino, F., Shang, J. and Croson, R. (2009) The impact of information from similar or different advisors on judgment. Organizational Behavior and Human Decision Processes 108 (2): 287–302.

    Article  Google Scholar 

  • Gino, F., Brooks, A.W. and Schweitzer, M.E. (2012) Anxiety, advice, and the ability to discern: Feeling anxious motivates individuals to seek and use advice. Journal of Personality and Social Psychology 102 (3): 497.

    Article  Google Scholar 

  • Gneezy, U. and Rustichini, A. (2000) A fine is a price. Journal of Legal Studies 29 (1): 1–17.

    Article  Google Scholar 

  • Godek, J. and Murray, K.B. (2008) Willingness to pay for advice: The role of rational and experiential processing. Organizational Behavior and Human Decision Processes 106 (1): 77–87.

    Article  Google Scholar 

  • Grable, J.E. and Joo, S.-h. (1999) Financial help-seeking behavior: Theory and implications. Financial Counseling and Planning 10 (1): 13–24.

    Google Scholar 

  • Grable, J.E. and Joo, S.-h. (2001) A further examination of financial help-seeking behaviour. Financial Counseling and Planning 12 (1): 55–74.

    Google Scholar 

  • Hackethal, A., Haliassos, M. and Jappelli, T. (2012) Financial advisors: A case of babysitters? Journal of Banking & Finance 36 (2): 509–524.

    Article  Google Scholar 

  • Harvey, N. and Fischer, I. (1997) Taking advice: Accepting help, improving judgment, and sharing responsibility. Organizational Behavior and Human Decision Processes 70 (2): 117–33.

    Article  Google Scholar 

  • Hershfield, Hal E. et al. (2011) Increasing saving behavior through age-progressed renderings of the future self. Journal of Marketing Research 48 (1): S23–S37.

    Article  Google Scholar 

  • Hoffmann, A.O.I., Franken, H. and Broekhuizen, T.L.J. (2012) Customer intention to adopt a fee-based advisory model: An empirical study in retail banking. International Journal of Bank Marketing 30 (2): 102–127.

    Article  Google Scholar 

  • Hull, J.C. (2012) Risk Management and Financial Institutions. New York: Wiley.

    Google Scholar 

  • Hung, A. and Yoong, J. (2010) Asking for help: Survey and experimental evidence on financial advice and behavior change. Santa Monica, CA: RAND Corporation.

  • Joiner, T.A. and Leveson, L. (2006) Financial planner credibility: The importance of being understood. International Journal of Financial Services Management 1 (4): 438–449.

    Article  Google Scholar 

  • Kahneman, D. and Riepe, M.W. (1998) Aspects of investor psychology. The Journal of Portfolio Management 24 (4): 52–65.

    Article  Google Scholar 

  • Karmarkar, U.R. and Tormala, Z.L. (2010) Believe me, I have no idea what I’m talking about: The effects of source certainty on consumer involvement and persuasion. Journal of Consumer Research 36 (6): 1033–1049.

    Article  Google Scholar 

  • Kaufmann, C., Weber, M. and Haisley, E. (2013) The role of experience sampling and graphical displays on one’s investment risk appetite. Management Science 59 (2): 323–340.

    Article  Google Scholar 

  • Kramer, M.M. (2012) Financial advice and individual investor portfolio performance. Financial Management 41 (2): 395–428.

    Article  Google Scholar 

  • Kramer, M. and Lensink, R. (2012) The impact of financial advisors on the stock portfolios of retail investors. Groningen: University of Groningen.

  • LeDoux, J.E. (1996) The Emotional Brain. New York: Touchstone.

    Google Scholar 

  • Lee, J. and Cho, J. (2005) Consumers’ use of information intermediaries and the impact on their information search behavior in the financial market. Journal of Consumer Affairs 39 (1): 95–120.

    Article  Google Scholar 

  • Loewenstein, G., Cain, D.M. and Sah, S. (2011) The limits of transparency: Pitfalls and potential of disclosing conflicts of interest. The American Economic Review 101 (3): 423–428.

    Article  Google Scholar 

  • Looney, C.A. and Hardin, A.M. (2009) Decision support for retirement portfolio management: Overcoming myopic loss aversion via technology design. Management Science 55 (10): 1688–1703.

    Article  Google Scholar 

  • Madrian, B.C. and Shea, D.F. (2000) The Power of Suggestion: Inertia in 401 (k) Participation and Savings Behavior. Cambridge, MA: National Bureau for Economic Research. NBER Working Paper, no. w7682.

  • Martin, S.J., Bassi, S. and Dunbar-Rees, R. (2012) Commitments, norms and custard creams; a social influence approach to reducing no-shows. Journal of the Royal Society of Medicine 105 (3): 101–104.

    Article  Google Scholar 

  • Martin, S., Goldstein, N. and Cialdini, R. (2014) The Small BIG: Small Changes that Spark Big Influence. London: Profile Books.

    Google Scholar 

  • Meier, S. and Sprenger, C.D. (2013) Discounting financial literacy: Time preferences and participation in financial education programs. Journal of Economic Behavior & Organization 95 (1): 159–174.

    Article  Google Scholar 

  • Michie, S., van Stralen, M.M. and West, R. (2011) The behaviour change wheel: A new method for characterising and designing behaviour change interventions. Implementation Science 6 (1): 42.

    Article  Google Scholar 

  • Mullainathan, S., Noeth, M. and Schoar, A. (2012) The Market for Financial Advice: An Audit Study. Cambridge, MA: National Bureau for Economic Research. NBER Working Paper no. w17929.

  • Neidert, G. and Cialdini, R. (1995) Instant Influence: How to Get What You Want in Any Business Situation. New York: Dartnell.

    Google Scholar 

  • Oliver, A. (2013) Behavioural Public Policy. New York: Cambridge University Press.

    Book  Google Scholar 

  • Pi, S.-M., Liao, H.-L. and Chen, H.-M. (2012) Factors that affect consumers’ trust and continuous adoption of online financial services. International Journal of Business and Management 7 (9): 108.

    Article  Google Scholar 

  • Riegelsberger, J., Sasse, M.A. and McCarthy, J.D. (2005) Rich Media, Poor Judgment? A Study of Media Effects on Users' Trust in Expertise. Proceedings of the HCI-05 Conference on People and Computers; 19, 267–284, London: HCI.

  • Sah, S., Loewenstein, G. and Cain, D.M. (2013) The burden of disclosure: Increased compliance with distrusted advice. Journal of Personality and Social Psychology 104 (2): 289.

    Article  Google Scholar 

  • Shafir, E. (2012) The Behavioral Foundations of Public Policy. Princeton, NJ: Princeton University Press.

    Google Scholar 

  • Shu, S.B. and Carlson, K.A. (2014) When three charms but four alarms: Identifying the optimal number of claims in persuasion settings. Journal of Marketing 78 (1): 127–139.

    Article  Google Scholar 

  • Siegrist, M., Earle, T.C. and Gutscher, H. (2005) Test of a trust and confidence model in the applied context of electromagnetic field (EMF) risks. Risk Analysis 23 (4): 705–716.

    Article  Google Scholar 

  • Sillence, E. and Briggs, P. (2007) Please advise: Using the Internet for health and financial advice. Computers in Human Behavior 23 (1): 727–748.

    Article  Google Scholar 

  • Stanovich, K.E. and West, R.F. (2000) Advancing the rationality debate. Behavioral and brain sciences 23 (5): 701–717.

    Article  Google Scholar 

  • Tenney, E.R., Spellman, B.A. and MacCoun, R.J. (2008) The benefits of knowing what you know (and what you don’t): How calibration affects credibility. Journal of Experimental Social Psychology 44 (5): 1368–1375.

    Article  Google Scholar 

  • Thaler, R. (1985) Mental accounting and consumer choice. Marketing Science 4 (3): 199–214.

    Article  Google Scholar 

  • Thaler, R.H. and Benartzi, S. (2004) Save More Tomorrow™: Using behavioral economics to increase employee saving. Journal of Political Economy 112 (S1): S164–S187.

    Article  Google Scholar 

  • Thaler, R.H. and Sunstein, C.R. (2008) Nudge: Improving Decisions About Health, Wealth, and Happiness. New Haven, CT: Yale University Press.

    Google Scholar 

  • Van Swol, L.M. and Sniezek, J.A. (2005) Factors affecting the acceptance of expert advice. British Journal of Social Psychology 44 (3): 443–461.

    Article  Google Scholar 

Download references

Acknowledgements

We thank Aviva Ltd UK for their financial support and comments on earlier versions of this article.

Author information

Authors and Affiliations

  1. Professor of Behavioural Science, Warwick Business School, University of Warwick, Coventry, UK

    Ivo Vlaev, Jeroen Nieboer, Steve Martin & Paul Dolan

Authors
  1. Ivo Vlaev
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Jeroen Nieboer
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Steve Martin
    View author publications

    You can also search for this author in PubMed Google Scholar

  4. Paul Dolan
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Ivo Vlaev.

Additional information

1joined Warwick Business School as a Professor of Behavioural Science in 2014. He received his DPhil in Experimental Psychology from St. John's College, Oxford, before working at the University of Warwick, University College London and Imperial College London. He studies decision making from the perspectives of psychology, neuroscience and economics. In 2010, he co-authored the Mindspace report published by the UK Cabinet Office, advising local and national policymakers on how to effectively use behavioural insights in their policy setting.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Vlaev, I., Nieboer, J., Martin, S. et al. How behavioural science can improve financial advice services. J Financ Serv Mark 20, 74–88 (2015). https://doi.org/10.1057/fsm.2015.1

Download citation

  • Received:

  • Revised:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1057/fsm.2015.1

Keywords

  • financial advice
  • behavioural economics
  • decision making
  • persuasion
  • behaviour change