How Framing Can Influence a Client’s Financial Decisions
Learn how framing can help clients understand the benefits and risks of financial products.
Framing is an example of a bias — a natural, built-in tendency we all have that influences how we make decisions. It’s one of the strongest biases that affects decision-making and can have a major impact on how receptive clients may be to your financial guidance.
In this article, Victor Ricciardi, author and professor of business, shares how people can react positively or negatively to framing and offers tips on how to present information in the best way for clients.
The Framing Effect
What it is
- The framing effect is a cognitive bias that influences how we react to a choice depending on how it’s presented to us.
How it works
- Framing bias comes into play when a person allows emotions and personal perceptions to influence the choices they make, rather than making rational decisions based solely on available factual information. Research indicates that some adults may be more receptive to information when it’s described positively rather negatively or neutrally. This results in decision-making that is based on the way information is presented or framed.1
Framing Conversations
How you frame a conversation with clients may affect how they respond to your guidance. It may also influence whether they engage with, or understand, the subject you’re discussing.
Focus on positive outcomes
People tend to focus more on their spending needs today than saving for future needs like retirement. One survey found that the average American spends nearly $18,000 a year on unnecessary expenses, yet 58% say it’s a challenge to save the money needed to meet their financial goals for the future.2 You can help clients consider their long-term goals by focusing on positive outcomes and discussing strategies that could help support their future lifestyle and ambitions.
For example, research found that some clients may be less receptive to a product like an annuity when it’s presented as an investment, due to concerns about how long it could take for those funds to be recouped.3 However, when the conversation was framed around an annuity’s ability to offer a guaranteed income stream that could provide spending money every month for the rest of their lives, research found that people were more likely to include an annuity in their plans for retirement.3
Discover how your clients feel
Even relatively common terms may contain a hidden emotional component for some clients. For instance, the word “risk” has a significant emotional component for some investors. It could be helpful to focus on a client’s risk tolerance and how they prioritize their spending in order to suggest a product that may be suitable for their portfolio.3 Explore how clients feel about a financial product or service by framing the conversation around their experiences and perceptions.
Avoid using technical language and industry jargon
Many clients may feel they don’t have enough financial knowledge to understand their options, which can leave them feeling overwhelmed. Financial professionals can help reframe or avoid negative perceptions by using relatable, everyday language whenever possible and by minimizing the use of complex financial terms and industry jargon.
When discussing volatility, for example, some financial professionals rely on technical terms, like “beta.” The beta concept is complicated and requires other concepts like systemic risk and regression analysis to fully understand its meaning. But in everyday language, beta can be described in more general terms as a way of measuring how much an investment’s value moves up and down compared to the rest of the market.
Effectively framing a conversation can help clients shift their thinking when exploring financial products to include in their plans for retirement. This is an important part of developing trust and building strong, long-term relationships with clients.
1 Framing Effect In Psychology. Simply Psychology, September 7, 2023.
2 Americans spend at least $18,000 a year on these non-essential costs. SWNS Digital, September 6, 2021.
3 The Annuity Puzzle: What Is It & Why Should You Care? Annuity.org, November 22, 2023.
Victor Ricciardi was paid a fee to prepare this article. The opinions expressed by Victor Ricciardi do not necessarily reflect the opinions of Brighthouse Financial. The author is not affiliated with Brighthouse Financial, is not an employee or representative of Brighthouse Financial, and is solely responsible for the content of his article. While this information is from sources believed to be reliable, the accuracy cannot be guaranteed.