Trusted, professional advice can strip these biases, which all have the potential to significantly hinder returns for investors.
As you will have seen, many of the behavioural biases that clients might demonstrate can be mitigated by having a properly discussed, properly researched and well understood long-term financial plan.
This of course should not be a one-off exercise at the initial advice stage, but a living plan that evolves and adapts and forms the foundations of all discussions between adviser and client.
Advisers also need to demonstrate empathy, taking the time to explain and helping clients to understand the decisions they are making. Talking honestly about your own emotions, and how you are personally feeling during challenging times, is a sure-fire way of building this two-way communication.
In addition, advisers need to demonstrate intellectual self-discipline, being aware of and challenging their own biases as well as helping clients to recognise it in themselves.
Both parties need to be honest in asking whether their decision-making is being influenced by anything other than solid, rational thinking backed with robust evidence.
By acting in this way, promoting friendly challenges to viewpoints and encouraging genuinely open discussions around investment decisions, the adviser-client relationship will be massively strengthened, and better client outcomes will become much more likely.
Louis Williams is head of psychology and behavioural Insights at Dynamic Planner
