How BeFi Can Calm Clients’ Retirement Fears

As any amateur photographer knows, framing matters.

The way advisors present retirement income plans to their clients can radically alter clients’ perceptions, according to a Janus Henderson survey. Respondents were more satisfied when their income came from dividends as opposed to selling stock shares, and they were more likely to prefer delaying Social Security payments when it was framed as a loss versus a gain. The findings point to the power behavioral finance can have over clients’ thoughts and opinions, allowing advisors to tailor their advice accordingly.

“Most of the literature suggests that higher-net-worth clients in good health are probably better off waiting to claim Social Security until age 70,” said Matt Sommer, who helped author the report. “Making small changes in how advisors communicate recommendations may have a significant impact on how clients process complicated information and ultimately make choices.”

Motivational Speech

Advisors will often present a Monte Carlo simulation, a statistical analysis showing the probability of different outcomes, to clients to illustrate the chances of retirement success or failure. But describing the outcomes in those terms might not yield the best results, according to the report, which found that clients were more comfortable when failure was instead framed as an opportunity to make spending adjustments. “Explaining Monte Carlo results as a success or failure can be interpreted as not having any say in one’s outcome,” Sommer said. “These feelings are disheartening and not very motivating. On the other hand, if the results are explained as something individuals can improve upon … the internal motivation needed to adopt and follow the plan is triggered.”

Other findings from the report include:

• Clients prefer dividend-paying stocks as their vehicle for income generation, with 39% already invested in them.
• More than seven in 10 clients are either “somewhat concerned” or “very concerned” that market volatility will negatively impact their ability to generate retirement income.

Frame of Mind. Ultimately, it’s advisors’ responsibility to communicate their clients’ investment and retirement plans to them in a way that makes them feel secure, Sommer said. “The key takeaway of our findings is that they are relatively simple for financial advisors to implement,” he added. “[Advisor] teams can discuss how these topics are presently conveyed and the best way to incorporate different language into their client service model moving forward.”