Do bodily functions have anything to do with how clients relate to their financial advisors? Can they influence financial behavior?
According to researchers in the Financial Planning Performance Lab at the University of Georgia in Athens, an individual’s physical functions – their heartbeat, the temperature of their skin, the amount of sweat they produce – seem to have an impact on their relationship with their financial advisor, an impact that in turn could perhaps impact their financial behavior and the kinds of financial decisions they make.
“Outside of financial planning, if you look at any health sciences, they have known for 50 years that people’s behavior is not drive solely by intention, and that there is a physiological aspect to human behavior,” says John Grable, a professor of financial planning at the university and the lab’s director. “In our lab, we want to test this relationship between money, behavior and financial planning so that we can eventually come up with tactical tools and strategies that financial advisors and planners can use in their practices to better understand their clients.”
Grable decided to test the effect of physical functions on advisor-client interactions after repeatedly observing a lack of “follow through” by investing clients. Even those advisors who have taken the efforts to integrate some of the core principles of behavioral finance in an effort to better understand and relate to their clients are, in Grable’s eyes, failing to get the results they hope for, since a lack of follow-through by clients leads to a repeat of the same kinds of financial behaviors and mistakes.
“We thought that if we could measure what actually drives people’s thought processes and attitudes, what actually shapes their reactions and decisions, we could get somewhere,” he says.
The lab’s experiments have shown that the more excited an individual is, the more likely they are to want to engage with a financial advisor and follow his or her recommendations.
In a series of experiments, clients were brought into the lab and hooked up to heart rate monitors and machines that measured how much sweat they produced as they met with a financial planner. In a first instance, experiments revealed that many clients were not actually “aroused” when meeting with the financial planner, Grable said, and he believes that this lack of interest during the meeting contributes heavily to the lack of follow-through after the meeting. “They look engaged, they look like they’re asking the right questions and responding to the advisor but physiologically, they are flat-lined,” he says. “In most cases, they’re at the financial planner’s because their spouse asked them to go, because they feel obligated to go, so there’s no arousal at all and when there is no arousal, there is no follow-through, no implementation of the financial advisor’s recommendations.”
Grable figured then that if a financial advisor can create arousal and generate a level of interest in their clients, then there’s a greater chance of clients implementing their advice and making better financial decisions. In the lab, that excitement is created through what Grable calls “financial intimacy.” Couples are brought into the lab and are asked about their history and relationships with money. The advisor probes them deeply and even forces them to go back into their childhood. As couples talk together about their financial past, examine their individual and joint histories vis-à-vis money and finances and learn things about each other that they might not have ever known, the researchers noted “aha” moments, which resulted in bodily excitement — faster heart beats, more sweat production — and a shared sense of arousal. Grable believes that this arousal is what an advisor should try to create and capitalize on in order to engage their clients at a deeper and more meaningful level, with the goal of even potentially effectuating a positive behavioral change.
On their end, Grable and his lab mates are interested in translating the “aha” moments they capture in their labs into workable tools and solutions that can measure and take human physiology into account for financial advisors to be able to use in their practices, as well as to improve financial planning teaching at the collegiate level.
Grable, who was the founding editor of the Journal of Personal Finance and co-founding editor of the Journal of Financial Therapy, worked as a pension and benefits administrator and later as a registered investment advisor in an asset management firm before entering academia.
— Check out Fighting Investor Bias Through Portfolio Design on ThinkAdvisor.