Chapter 11: Policy-Based Financial Planning: Decision Rules for a Changing World
Investor Behavior: The Psychology of Financial Planning and Investing. H. Kent Baker and Victor Ricciardi, editors, 191-208, Hoboken, NJ: John Wiley & Sons, Inc., 2014
Posted: 14 Feb 2014
Date Written: February 10, 2014
Abstract
Financial planning policies are compact decision rules that can act as a touchstone to both clients and their advisors and allow for rapid decision making in the face of a changing environment. Good policies represent the distillation of client goals and values, as well as the relevant financial planning best practices, in a form that can both anchor the client to a consistent course of action and save the advisor from the necessity of crunching the numbers every time a question arises. Financial planning policies can be thought of as a form of "choice architecture" designed to neutralize and/or leverage behavioral biases in favor of financial planning best practices. Evidence suggests that in the process of developing policies, involving the client to such a large degree is associated with higher levels of client trust and relationship commitment. Further, trust and commitment are associated with qualities predictive of a successful financial planning engagement, including higher client satisfaction and retention as well as a greater propensity to reveal personal and financial information and implement planning recommendations.
Keywords: behavioral finance, choice architecture, decision architecture, policy, policy-based financial planning, financial planning, policies, strategy, strategies, personal finance
JEL Classification: A12, D1, D11, D12, D81
Suggested Citation: Suggested Citation