You’ve heard the term “mind over matter,” but is it true when it comes to our money? TD Wealth is working to help investors better understand their behaviour so they can achieve greater financial success. Kim Parlee speaks with Lisa Brenneman, Head of Behavioural Finance at TD Wealth, and Dilip Soman, Director of Behavioural Economics in Action at Rotman and Canada’s Research Chair in Behavioural Economics, about ways we can become more enlightened investors and advisors.
TD Wealth is trying to help investors understand their own behavior when it comes to money so that they can achieve greater financial success. Lisa Brenneman is the head of behavioral finance at TD Wealth, and Dilip Soman is director of behavioral economics and action at Rotman, also known as BEAR. And he's also Canada's research chair in behavioral economics. And they're here now to talk about how their work is doing a lot of-- or helping with a lot of progress to move towards more enlightened investors.
Lisa, Dilip, it's great to have you both here. And Lisa, if I could, I'd like to start with you, maybe just a bit of background. How has TD Wealth utilized behavioral finance? I mean, what does what does that look like at TD Wealth?
- Well, it's actually been quite exciting, and it's been so far a five-year journey. Since 2015, TD Wealth has been taking the field of behavioral finance and applying it to our real-life interactions with our clients and then how they reach their financial goals. We know two things-- that our personality impacts the way we make financial decisions, but we also know that how we make those financial decisions impacts whether or not we're going to reach our goals.
And it's important for us as individuals to know how we make those financial decisions, how our personality does impact those financial decisions, but it's equally important for our advisors to know so that they can help us get to our financial goals. And at TD Wealth, we call it a wealth personality profile. And our advisors actually conduct a five-minute assessment with our clients, and that helps them understand how they may act or react when it comes to money.
In addition to that, we do a significant amount of research, publish industry reports et cetera. But the fundamental area is that application of the science in our real life and our world, in all of us trying to achieve our financial goals.
So interesting stuff. And I've seen, obviously, the Wealth Personality Assessment. It's a great tool, I know, that advisors have been using. And Dilip, if I could turn to you and say, how do you think-- or how has BEAR supported TD over the years? And Lisa alluded to some research, but maybe you can highlight some of the ways that BEAR has supported TD.
- Sure. So first of all, thanks again for doing this and for having me on. I'd say BEAR's contributions are in two broad buckets. The first one has to do with providing evidence to help TD Wealth and to help Lisa and her team fine-tune some of the initiatives that they had already started.
So for example, Lisa mentioned wealth personality. That was something that was out there. We knew personality matters, but we didn't know exactly how. And so that's where some of the research done by some of our team members has helped Lisa identify which aspects of personality and what does that actually mean for the way in which we communicate with those end users. So that's a concrete example of some evidence that we've generated based on surveys, based on experiments to help TD Wealth fine-tune and provide evidence for some of the initiatives that they had.
I guess the second bucket has to do with more agenda-setting research. So for example, what do we know about personality and its effects on decision-making to begin with? So putting together things like that. Or for example, more generally, what are the areas in which TD Wealth can actually work with their clients to try and fine-tune products and communication in the way advisors go about doing their business? What can behavioral science inform there? And I think those are the more scientific-- let's start with the science and then try and see where the applications are.
And let's start with the science and then try and see where the applications are kind of approaches. More recently, for example, post-COVID-19 when a lot of our business-- not just yours, but every business is moving online, one of the agenda-setting pieces of research we did a year ago was how does consumers' financial decision making change when it's online versus in a brick-and-mortar location? And so those are the kinds of things where we can actually bring those new pieces of evidence, those new agenda-setting items to the table so TD Wealth and all of the design teams can take those ideas and build different products and services.
Let me build on that, Lisa. And Dilip's mentioning a number of things in terms of how research is going into our offerings. And maybe I could ask you just how-- from a tangible standpoint, how has that collaboration really helped TD Wealth, and advisors specifically?
Well, yes, it's-- the behavioral science and behavioral finance has many theoretical areas. And the application really makes a difference in the day-to-day work of our advisors and also what our clients receive and how they're able to achieve their goals, as I was mentioning.
But it helps our advisors, and TD as a firm, be significantly more responsive. Historically, the industry of wealth management is about managing investments. TD Wealth has really taken some bold moves in it's about an entire relationship. Financial success, obviously, is a major part of that and how we help our clients and coach them to get to that stage is equally as important. So it's not just about the investments. It's about an entire relationship and everything that we bring to it.
And so the relationship with BEAR has helped us beef up and really energize that other part of it. It is the investments plus the whole person. And if we're serving the whole person, we're doing so much more for them as they try and reach their financial goals.
It's an excellent point because really, this is what it's all about, is how do we better serve the client. And to your point, Lisa, if you're talking to the whole person, you're going to do a better job. But maybe, Dilip, you could just talk a bit about why you think that is better for clients, why it's better-- what they get out of this when that actually happens.
- So I'm going to go back to the behavioral econ 101 story, which is I actually don't think clients don't know what they should do. Everyone knows what's good for them. They want to save for retirement. They want their kids to be educated, right? There's just so many frictions in the way. And some of those frictions happen because of processes, but a larger set of frictions happen because of psychology, right?
So a lot of people are hesitant to go speak to an advisor, for example, because they feel embarrassed. They feel awkward. And so behavioral science helps us understand what those frictions are and to hopefully try and overcome those frictions. So we know that if, in fact, people follow through on what they intend to do, if we can help them implement their plans, if we can help them be psychologically safe, and if we can target communications in the right and appropriate manner for each different set of clients, then, in fact, we can facilitate financial well-being for them.
So I think that's really the value of behavioral science to helping people make better decisions. It's not about forcing people. It's not about selling them things they don't need, but really understanding what they need and then facilitating. And the choice is theirs at the end of it, but we just remove the psychological frictions, I think, is the way to think about it.
- So Dilip, I'm going to pick up on that because the idea of psychological friction and helping investors and people do what's in the best interest of them, that's kind of half the challenge sometimes. Lisa, that's, I think, one of things-- and you and I have talked about this before-- but the wealth personality tool, is it really allows people to have a deep understanding so you can help people with their own, I guess, for lack of a better word, psychological barriers in doing things that are in their best interest.
- Oh, that's completely correct. Our Wealth Personality Assessment allows an advisor to personalize their advice to that client based on their personality. Now, historically, somebody-- Dilip and I, we might get the same type of advice because we have the exact same amount of assets to invest. But with the assessment, Dilip-- we might find that Dilip might be more reactive or more conscientious than I am.
Therefore, the advice, the relationship, the conversation, all the different things that make it possible for Dilip to achieve his goals would be very different than what I should receive. You see, it's not just about our investments. It's about coaching. And our advisors now are much more able to personalize that advice based on Dilip's personality versus mine.
- It's clear from this conversation about why this makes sense for TD to help bring this to clients to give them better outcomes and help manage their life, as Lisa talked about. But Dilip, I'm curious-- why is this relationship good for you at BEAR?
- Oh, gosh, Kim, our center is called Behavioral Economics in Action. And I think that "in action" part signifies the fact that we're really interested in making an impact. We're really interested in actually collecting real data from real people and have an impact in the real world. I mean, we could keep doing our research in the labs, but there's always questions about, is this generalizable? Can we scale it? And I think relationships like these allow us to actually create positive impact.
So for our students, it's amazing. We can create life cases for them. We can actually teach them the complexities of the real world which we otherwise would never bring to a classroom. So that's an easy win for us.
- Let me ask you-- I mean, we're talking, obviously, remotely. We're all in our homes, and we're working at home. So I guess it's-- you touched on this a bit earlier as well, Dilip, about what the effect of COVID-19 has had on people and maybe how they want to manage money. At Lisa, I think I'll start with you. How would you say behavioral finance is playing a role during these, I would say, challenging times?
- So I think there are some obvious ones, which is our understanding of risk is important. The way people think about risk is different now. But I do think the way in which we actually take some of that knowledge and make it work for us-- I think that's the other key.
So we talked a little bit of the fact that people make decisions differently online, but I think organizations also make decisions differently online. So the online world gives us a lot more opportunities for doing creative things that the online world doesn't. And just to use an old tennis metaphor, John McEnroe never won French Open because he confessed in one of his interviews that he kept bringing his grass court play to clay.
And I think one of the things that Lisa and I have been talking about is when we take our existing offline processes and try to digitize them, we shouldn't make that mistake. We need to embrace what the internet can offer us. So I think from many perspectives, I think behavioral science can offer a lot during these times of COVID.
- Lisa, what are your thoughts when it comes to-- just from the advisor perspective on that?
- Well, our advisors are very well versed in this area right now and have been able to be very proactive with their clients in their conversations because they know what their wealth personality is. COVID has created a lot of market turbulence. Market turbulence on its own causes anxiety, discomfort for us. But then the impact of COVID on top of that just added to that sense of loss of control.
So our advisors have been incredibly proactive, which is great because of the fact that our clients really need calm conversations-- how to stick to their plans, stay the course, et cetera. And because they've been able to know in advance what their clients' wealth personality is, they can customize those conversations so much better so it serves the needs of that client at that time when they're feeling the most anxious.
And we're really seeing that play out in spades. Our clients are giving some of the best customer experience scores we've had because they're acknowledging how fabulous it is to hear from their advisor in a very personalized way, calming, and helping them get through this difficult time.
- Lisa, one last question. For anyone who's been watching this conversation and wants to dig in a little deeper and find out more, where should they go?
- Well, the best place and the first place I would recommend is go to our website. And that is td.com/behavioralfinance, as simple as that. You can find all the information you need, and also a great way to find an advisor or financial planner from TD that fits you.
- Lisa, Dilip, thanks so much. Great to talk to you both, and be well.
- Thank you.
- Thank you.