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Kreisler: Behavioral Economics Key to Better Understanding Your Clients

Conferences and Events

In his April 7 keynote address at the 2019 NAPA 401(k) Summit in Las Vegas, Jeff Kreisler offered ideas on how psychology affects financial professionals’ relationships with clients.

The complexity of money creates challenges, argued Kreisler, who is editor-in-chief at and executive director of the Final Edition Radio Hour. “We obsess about money,” he said, at least regarding how to spend it – but not regarding how to invest it. “It is really hard to think about money,” said Kreisler, telling attendees that “emotion is the hidden force that drives our decisions about money.”

All decisions require investors to evaluate something and decide what is right for them, Kreisler argued. “It’s all about making value judgments,” he said, adding that making them is “very hard for us because we are human.” And the inability to assess value can lead to further difficulties, such as falling into traps concerning spending and saving.

Kreisler identified some tools that can help in understanding one’s clients and their approach to money. For instance:

  • The pain of actually paying for something – rather than using a credit card so it is relatively unseen and unfelt – can make one more thoughtful about spending and choices. 
  • People often will pay more for something that appears to take more effort to make, provide or obtain. 
  • What others do, and what one’s peers do, can be a very powerful influence. 
  • Everyone has financial stress.

Kreisler suggested that one can help clients to achieve better outcomes by: 

  • Making a plan or a goal specific; for instance, using dates makes it more real.
  • Making a plan personal. Help make it something that a client helps to design and build. 
  • Make it visible. Scarcity shows how money is spent, and how money affects one and one’s family. Money generally is not talked about, so visibility of gains and losses helps. 
  • Help them understand that there is a difference between needs and wants.
  • Curate choices for clients. Too many choices will not be helpful; a more limited number will be.