Manulife partners with BEworks to train advisors in behavioural economics

Bernard Letendre, Manulife’s wealth and asset management head for Canada, said Wednesday that the firm is creating a microsite to train advisors on behavioural economics, featuring videos and white papers. BEworks chief client officer David Lewis is also speaking to Manulife advisors at a series of roadshows across the country.

As investment firms compete with competition from robo-advisors, many are starting to emphasize the coaching relationship with clients and the psychological and emotional support advisors can provide.

Catherine Milum, Manulife’s head of wealth sales for Canada, said too much emphasis is put on graphs and numbers in discussions with clients.

“The number one job of an advisor is to keep clients invested,” she said at a launch event in Toronto on Wednesday.

Philip Petursson, Manulife’s chief investment strategist, said many investors sold at a low point when markets tanked last year. December 2018 saw larger one-month outflows from U.S. equity and balanced funds than October 2008, he said, even though fundamentals were still supportive of expanded earnings and global economic growth. Those who pulled out missed the 2019 rebound.

Lewis outlined four tools to prevent clients from reacting emotionally and jeopardizing their investments.

• Pre-commitment: Have clients agree to remain invested in the market unless it drops by a pre-determined amount (e.g., 20% to 25%). “People like to be self-consistent,” he said. Establishing a threshold allows a client to say, “I made a decision and I’m a smart person and I’m going to be consistent with that good decision,” Lewis said.
• Mental accounting: Separating money into separate buckets can be a useful illusion. If advisors can get clients to think about a portion of their money as a long-term investment that they can forget about for 20 years, “you can actually desensitize them to the volatility,” he said.
• Emotion priming: People tend to feel emotions more strongly when they feel they don’t have control over them. Discussing market fears with clients allows them to confront their anxiety, which gives advisors the opportunity to say they’re feeling the same way, while offering reassurance that clients are doing the right thing.
• Mental time travel: When a client wants to liquidate assets in a panic, ask how they would feel in a month if, as typically happens, the market rebounds and they miss out on a 20% gain. This time travel can be pushed farther to help clients imagine how present decisions will affect their quality of life in retirement.

“Advisors themselves can fall prey to the very same biases [as] their clients,” Lewis said. Advisors’ experience, plus behavioural economics training, can help everyone self-correct.