What is Behavioural Finance?
Behavioural finance is an area of study that combines psychology,
sociology with economics and finance.
This explains systemic biases that are exhibited by financial markets
and investors. It asserts that people often behave irrationally based
on emotion and cognitive biases.
How can I use Behavioural
Finance to help my clients?
Why does it matter?
Cognitive biases can lead to poor decision making,
and potentially result in poor financial outcomes.
Understanding and recognizing cognitive biases
in client decision making can help advisers in the
following ways.
?
Improved communication
Advisers can tailor their
communications to better
resonate with clients. Using
real world examples will
make the information more
meaningful.
Improved decision making
Through educating clients
on their cognitive biases,
advisers can help their
clients make more rational
decisions, improving long
term financial outcomes.
For example the Sunk
Cost Fallacy explains
when investors hold
onto poorly performing
stocks, simply because
they don’t want to admit
they made a mistake.
Jargon Buster | Cognitive Bias
A cognitive bias is a systematic error in thinking.
It occurs when people are
processing and interpreting
information in the world
around them and affects the
decisions and judgments
that they make1.
Building trust
This helps build trust as clients
are more likely to work with
advisers who they believe are
acting in their best interest.
Online – Very Well Mind
1
Best Overall MPS provider
mps Awards Winner 2022
Best MPS Technology/Platform
mps Awards Winner 2022
THE VALUE OF INVESTMENTS CAN GO DOWN AS WELL AS UP & IT IS POSSIBLE TO GET BACK LESS THAN THE AMOUNT INVESTED.
PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.
© 2023 ebi portfolios ltd. All rights reserved. Issued by ebi portfolios ltd. ebi Portfolios Ltd is authorised and regulated by the Financial Conduct Authority (581079)
Registered in England, Number 07473221. Registered Address: Aurora, Counterslip, Bristol, BS1 6BX
EBI23-082
ebi
A C A D E M Y