Guiding clients through psychological biases can help protect their money

A core reason for clients seeking advice is not simply to know what the best investments are and how to maximise their wealth, but also to provide a sense of control over their finances.

Research outlined in Russel Investments Value of an Adviser Report 2025 highlights that 86 per cent of advised clients and 76 per cent of unadvised investors agree that the top emotional benefit of advice is “feeling more in control of their finances”.

While the client desire for control is important, a gap exists between the emphasis clients and advisers place on this, with only 48 per cent of advisers seeing this as an important emotional benefit.

A client’s desire for a sense of control can often lead to biases in their behaviour that can negatively impact the way they receive advice and what they get from the process. Natalia Smith, founder and principal adviser and Truwealth, identified to ifa that overconfidence in their financial literacy is one common negative client behaviour that arises from this.

“An overconfident client might decide [after receiving advice] that they will sort their finances themselves. They might say ‘I have done this all in the past and it worked for me then’,” Smith said.

For Smith, advisers play a key role in managing these biases.

“We are our worst enemies. Sometimes we're driven by emotions and a lot of people make decisions based on them,” Smith said, “It’s an advisers’ role to help clients be better with their money.”

Comparing this process to that of repeat visits to a personal trainer, Smith emphasised that managing client psychology that may be negative is an ongoing process and needs repeat enforcement, with client follow ups important to gauging the effectiveness.

The best way to approach managing client biases and negative behaviours is helping them identifying it themselves. To do this, Smith highlighted, you must understand what kind of client you are dealing with.

“If they are an engineer, for example, that type of client will respond really well to data,” she explained.

She added that other clients may respond well to stories or analogies that highlight the potential negative impacts of their bias.

“It's really good to understand your client before they come into you. That's why you do a questionnaire with them, or an analysis. It's almost like psychometric testing,” Smith said.

Other negative psychological biases clients might present include resistance to advice, impulsive spending habits or being fear driven decision makers.

Helping clients understand their goals better is also an effective tool in pushing them away from potential biases, according to Smith, likening to process to “peeling an onion”.

“It can be quite confrontational, but you really need to ask those ‘why questions’. What's behind this decision? Why is it important?” Smith said.

She added: “You don't stop asking questions until you fully understand why they want to do what they want to do.”

It is important, however, not to neglect a client’s desire for control over their finances. For Smith, this means an approach where advisers help clients identify these biases, helping them create the checks and balances that will mitigate the behaviour.

“This might mean encouraging creating an account someone channels a portion of their salary to if they have impulsive spending habits,” Smith gave as an example.

She also suggested that advisers should view themselves akin to a coach, with behavioural training and continued psychological management of clients being a vital aspect of the role.

“We [humans] are lazy by nature. We don’t want to do difficult things. So, our job as advisers is to make sure that clients actually continue to work harder at their plan and be aware of their biases,” Smith concluded.