The right advice: improving client outcomes using behavioural economics

This article summarizes the findings of our “2021 value of behaviourally informed financial advice study.” For a more complete analysis of the study and the results, see our research white paper.

Planning your financial future is incredibly important, but it can be complicated, time-consuming, and costly if mistakes are made. So, why do less than half of all Canadian investors look for professional financial advice1 despite evidence that shows investors who receive professional advice have almost four times more assets after 15 years than those without advisors?2

Humans are often irrational — we don’t always behave logically, even when it comes to our own self-interest, due to emotional biases. Decisions based on emotions can throw us off the best path, and when it comes to our finances, they can be disastrous. We know that behavioural economics (BE) can help uncover and fight these biases, but can BE principles help improve Canadians’ financial portfolios as well? We looked to answer that question in our “2021 value of behaviourally informed financial advice study.”

The basics of behavioural economics

BE is a field of research that seeks to understand why people make the decisions they do, specifically, in areas related to money. It takes a holistic view of the social, psychological, cultural, and emotional factors that play a role in the attitudes people have and, ultimately, the financial decisions they make. BE researchers accept the fact that people don’t necessarily act in their own best interests due to emotional biases. Based on this idea, BE researchers look for ways to ease or eliminate those biases, and guide people toward making more beneficial decisions.

In our study, we targeted four specific biases that we believed were at the heart of the tendency of investors to not seek financial advice.


People tend to overestimate their own knowledge and skills when making decisions.

Illusion of control

People believe they can control outcomes that are actually random.


People think that current conditions will continue indefinitely.

Loss aversion

People are highly sensitive to the risk of losses, particularly to losing money.

The experiment

We gave nearly 3,000 online participants from North America a hypothetical $250,000 to invest with a five-year timeframe. We divided them into groups and gave them advice on how they should invest the money (in the form of a video from an advisor), as well as a list of 36 equity, fixed-income, and money market mutual funds they could choose from to build their portfolios.

All participants received the same asset allocation advice, recommending that they allocate 60% of their hypothetical portfolio to equity, 30% to fixed income, and 10% to money market. But the language used to deliver the advice to each participant group was altered, as the table below explains, so we could study the effects of different styles of behaviourally informed advice. We wanted these behaviourally informed tactics to increase the likelihood that respondents would follow the asset allocation advice proposed in the video — advice meant to help investors pick the best asset allocations and, therefore, create better portfolios.

Types of financial advice given to different groups

Basic asset allocation advice (control)

“Plain, vanilla” financial advice, used as a control group — participants got basic advice with no language changes to influence their decisions.

Simply directive


Participants in this group got slightly more advice than basic asset allocation. The language in the advice video emphasized the most relevant information for investment decisions, which also lowered the chance of participants being overloaded with information.


The “Simply directive” advice is the foundation on which all other behaviourally informed advice was layered; that is, the other groups received both the “Simply directive” advice plus one of the other types of behaviourally modified advice listed below in this table.

Leverage expertise


This type of advice appealed to people’s trust in experts. It highlighted what financial experts would normally do or what advice they would give in the participants’ situation.


Example: “Expert investors with a five-year time horizon have an asset allocation of 60% equity, 30% fixed income, and 10% money market.”

Social norms


People are often influenced by what their peers, family, friends, etc. are doing, This advice used language to describe how other people in the participants’’ situation allocate their funds.


Example: “Most Canadian investors have an asset allocation of 60% equity, 30% fixed income, and 10% money market.”

Extremeness aversion


People usually like to avoid extremes when making decisions. This advice was a middle-of-the-road option between taking too much risk and not taking enough risk.


Example: “If you had a longer time horizon, for example 15 years, I might suggest you could take on more risk with an 80% equity and 20% fixed-income split that would be expected to pay off in the long term.”

Integrated BE

This advice combined elements of the other types of advice listed above in this table to look at the added effect of the individual types of advice and the biases they could possibly cause or trigger.

The results

Clients are more likely to follow behaviourally informed financial advice

The first takeaway from our experiment is that using behavioral economics principles in the communication techniques led to participants following the advice given to them more closely. In fact, participants who received behaviorally informed advice were nearly twice as likely to follow financial recommendations than those who received conventional advice.

Not only did people follow the advice more often, but when BE was used to tailor the advice, people tended to follow it more closely. Our control group deviated from the advice they received between 13% and 36% more often than those who received the BE advice.

BE can help increase adherance to advice

Percent of investors who followed advisor recomendations exactly

Bar chart showing the percentage of investors in the study that followed advisor recommendations exactly, grouped by experiment condition. 8.7% of those in the control followed advice exactly, while nearly 20% of those in the extremeness aversion condition did so; those in the integrated BE condition followed advice 16.7% of the time.

Source: BEWorks research, Manulife Investment Management, 2021.

Behaviourally informed advice improved diversification

Our study showed that BE-modified advice led participants to choose a far more diverse and optimized portfolio of funds. They invested in a greater number of funds and more diverse fund types, thereby spreading their risk.

BE-influenced participants chose more funds and more types of funds

Bar chart showing the number of funds and number of types of funds selected by participants in the study, grouped by condition. The number of funds and number of types of funds selected for investment was significantly greater than our control for simply directive, integrated BE, extremeness aversion, and social norms compared to the control.

Source: BEWorks research, Manulife Investment Management, 2021.

Behaviourally informed advice improved portfolio risk/reward

Participants who received BE-modified advice created portfolios with significantly better risk/reward ratios than those who received generic advice. Specifically, the types of BE advice that gave the highest Sharpe ratios3, compared with those in the control group, were the “Social norms” advice (0.63) and the “Integrated BE” advice (0.61).

BE can help improve portfolio risk/reward

Sharpe ratio of participants' portfolios

Bar chart of the Sharpe Ratios created by the study participants hypothetical portfolios. The Sharpe Ratios for those in social norms (0.63) and Integrated BE (0.61) conditions were better than the control (0.57), while those in the extremeness aversion condition didn’t have significantly improved Sharpe Ratios.

Source: BEWorks research, Manulife Investment Management, 2021.

Client perceptions of financial professionals improved

Compared with traditional advice, our study found that participants’ perception of financial professionals improved in those participants who received BE advice. Certain forms of BE advice made people feel more comfortable working with a financial professional, increased trust in them, and made participants feel more likely to consult a financial professional in the future.

BE can help improve perceptions of financial professionals

Likelihood of consulting with an advisor in the future

Bar chart showing the study participants’ likelihood of consulting with an advisor in the future, grouped by behavioural condition. In particular, those in the simply directive, social norms, and integrated BE conditions were more likely to consult an advisor in the future than those in the control group.

Source: BEWorks research, Manulife Investment Management, 2021. The results are based on three questions regarding the likelihood of consulting with an advisor in the future, in which the participants rated the likelihood from 1 (Extremely unlikely) to 7 (Extremely likely).  The Y axis is thus a restricted range of the possible values of answering 3 on all three questions to 21 . The latent variable is not an average of all three but is instead acalculation based on correlations of the items and patterns between groups.


We know that encouraging investors to seek and follow professional financial advice creates better outcomes for those investors. Our study revealed that the way in which that advice is delivered can have major outcomes for financial professionals and their clients, including their ongoing relationship. In short, incorporating behavioural economics tactics into the way financial professionals interact with their clients has the power to create better outcomes for these clients.

We set out a list of recommendations based on our study in a full-length report. We encourage you to learn more about the behavioural biases that can affect your clients and their financial outcomes from our behavioural economics page. You can also dive deeper into the psychology that influences financial decisions by taking the “Behavioural economics for financial advisors” training course.

1, 2019. 2 May2019/ aef200115.pdf, 2019. 3 The Sharpe Ratio is a measure of an investment’s return relative to its risk. Generally, the greater the Sharpe Ratio, the more attractive the risk-adjusted return.

For advisor use only.

All overviews and commentary are intended to be general in nature and for current interest. While helpful, these overviews are no substitute for professional tax, investment or legal advice. Clients should seek professional advice for their particular situation. Neither Manulife, Manulife Investment Management Limited (formerly named Manulife Asset Management Limited), Manulife Investment Management, nor any of their affiliates or representatives is providing tax, investment or legal advice. This material was prepared solely for informational purposes, does not constitute an offer or an invitation by or on behalf of Manulife Investment Management to any person to buy or sell any security and is no indication of trading intent in any fund or account managed by Manulife Investment Management. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Unless otherwise specified, all data is sourced from Manulife Investment Management. Manulife Investment Management is a trade name of Manulife Investment Management Limited. Manulife, Manulife Investment Management, the Stylized M Design, and Manulife Investment Management & Stylized M Design are trademarks of The Manufacturers Life Insurance Company and are used by it, and by its affiliates under license.

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