When it comes to educating people, financial advisors might want to consider taking a cue from doctors
The approach of holding financial-education classes and seminars for clients is well established across institutions and firms. But this traditional approach to spreading awareness produces inconsistent results among people, and it might be time for a change.
“It’s pretty well established that people’s financial knowledge is abysmal, and their financial decision making is too often uninformed,” wrote Bruce Wolfe, founder and former executive director of the BlackRock Retirement Institute, in a column for the Wall Street Journal. “That shouldn’t be surprising … our financial knowledge (if we even have it) can atrophy pretty quickly from infrequent use.”
Wolfe argued that people do not often make important financial decisions — once a week, once a month, or even less frequently — and consequently have few opportunities to apply knowledge from past one-time classes, seminars, and readings of brochures.
But when it comes to medical advice, the situations and results are different. A doctor’s visit may last 15 to 20 minutes, during which a lot of ground is covered: the doctor shares the diagnosis, the patient asks questions, and they arrive at a decision that, in some cases, could be life-or-death.
“Add on to this the patient’s most likely lack of expertise and fluency on the medical topic and you have a potential recipe for disaster,” Wolfe said. “But it often works. In a brief period, the physician finds a way to temporarily raise the patient’s knowledge level to the point where a decision can be made with confidence.”
He proposed that the approach of “just-in-time” decision-making adopted in the medical field could be applied to help people with financial decisions as well. Rather than seeding people’s minds with lessons from seminars and brochures — materials they’ll likely encounter when they’re not so receptive — it might be better to provide them information and decision-making structure at the “point of sale,” right when they need to make a call on their finances, within a 15- to 20-minute period.
“To make this happen, we need to think of the process in three steps,” Wolfe said. First, the investor has to be motivated and engaged. That requires creating an interactive, dynamic process driven by conversation and enhanced with technology. He also recommended visual cues, such as infographics, for people to absorb and respond to more strongly.
Second, the advisor has to ensure that people actually absorb and process the information and trade-offs presented to them. He stressed the importance of simplicity, focusing on just one decision and building short-term knowledge based on an iterative process that lets people see the real-time impact of each of their priorities.
“For example, filtering fixed-income mutual funds based on an easy-to-understand chart where you can enter variables such as your target income goal, acceptable volatility range and management-fee threshold,” he said.
Finally, Wolfe noted that the process for taking action should connect directly to the decision. Once the advisor and the investor have gone through the selection process leading to a mutual-fund choice, for example, they should have a straight-through set of on-screen “clicks” leading to the purchase.
“In a world where we are inundated by information, a ‘just-in-time’ formula might be the right prescription to help improve our financial health,” he said.
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