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Why it’s well-nigh time to break the thought famine in financial advice and focus on long range creative models to fuel new actions – with the help of a gentle nudge (but no winks).
When the head of advice and distribution at ANZ Bank, Paul Barrett, took to the stage at the recent Financial Services Council conference, he raised the concept of nudging consumers into financial advice.
The book Paul referenced and encouraged the financial planning industry to read, was an international best seller a few years ago. Called ‘Nudge’, the dense tome was first published in 2008 by Richard Thaler and Cass Sunstein.
Its key thesis – using deeper understanding of human nature and psychology to effect change in people by implementing small ‘nudges’ – caught on with British Prime Minister David Cameron and US President Barack Obama.
In effect, it’s a theory offering legitimate reasons of social good to implement what ‘Nudge’ authors describe as ‘libertarian paternalism’. Not quite mind control, more like using knowledge of the collective sub-conscious in humans and helping to drive the herd down the right pathway (say, towards saving more for retirement, eating the right food …you get the drift).
The authors describe this paternalistic aspect as being “legitimate… to try to influence people’s behavior in order to make their lives longer, healthier and better”.
A simple example is putting healthy food at eye level of children in the school canteen and putting the sugary, junk food in places harder to reach.
So what place does nudging have in financial planning? And why is the industry late to the nudge party, given the book first surfaced five years ago and its mainstream popularity appeared to peak two years ago?
To me, the reason is that the industry of financial advice has emerged from a five year, post-GFC, regulator-imposed thought famine.
In other words, either food for thinking was in short supply, or the appetite for long range creative models to fuel new actions and processes was extinguished by the hard hand of rational discourse concerning the Future of Financial Advice.
In any event, we have Paul to thank for reading the book and applying his own interpretation of what it might mean for policymakers, advice businesses and representative organisations to start looking at better ways to nudge more people into seeking quality financial advice.
I like the nudge theory. I like that at least one of the large vertically integrated groups is thinking about it. But most of all I like that the basis for nudge is placing more power in the hands of the individual to decide for themselves what is right, with a little gentle influence.
It sure beats the hell out of the industry’s other nudge process of yesteryear – the ‘nudge nudge, wink wink,’ model of high upfront fees, trailing commissions and inappropriate high pressure sales tactics.
