Due to advances in behavioural science, we now appreciate more of the nudges needed to encourage us to think through complex and thorny issues. Simon Prescott, Head of Wealth Planning at Nedbank Private Wealth, weighs up how new approaches may encourage planning for the future, including preparing for any difficulties linked to mental incapacity.
It is now thought there are 188 behavioural biases affecting the way we humans approach life and the multiple decisions we make, which can be broadly separated into cognitive biases and emotional biases. I’d like to focus today on the cognitive ones, which involve our intellectual activity around thinking, reasoning, or remembering. This is particularly interesting for me, as a wealth planner, as my job is not just to provide advice, but also to get you to act on it.
As a result, the team and I spend a lot of time understanding how we are all pre-programmed to avoid thinking too much. It is probably best summed up by a quote of Daniel Kahneman, the economist and psychologist, who stated: “Thinking is to humans as swimming is to cats; they can do it but they’d prefer not to.”
An aspect of this thinking was recently supported by research published by University College London, which shed light on people’s traits with regard to thought processes, whether focused on finances or on other aspects of life, such as health or temperament
It also means we need to consider how different people initially approach the advice we supply, given it helps us to help them. An aspect of this thinking was recently supported by research published by University College London, which shed light on people’s traits with regard to thought processes, whether focused on finances or on other aspects of life, such as health or temperament. The choices behind the divergent approaches come down to:
- Affect: how you believe the information will make you feel following its receipt.
- Action: how useful you perceive the knowledge would be and whether it directly impacts you (especially if it relates to a reward or a bad outcome).
- Cognition: whether it relates to topics you regularly think through.
The final findings were a collation of results from five experiments, carried out across 543 research participants, and encompassed questions on health, behaviour, relationships and finance. The topics ranged from pertinent ones seeking the propensity to develop Alzheimer’s disease through to how family and friends rate them, and what income percentile they ranked in. The individuals were then asked how useful they thought the information might be, how they had expected the answers would make them feel, and how often they thought about each of the subjects covered by the questions. The process was repeated three months later to check for consistency.
As a result, the research scientists could gauge what factors influenced the information gathering process and how people decided what information they wished to obtain
As a result, the research scientists could gauge what factors influenced the information gathering process and how people decided what information they wished to obtain. It allowed for the creation of a model featuring the three traits of affect, action and cognition, which best explained the rationale as to why information was sought or avoided versus the alternative models tested.
But what has this got to do with dementia?
Dementia is a difficult topic to broach with any client. There may be individual fears that are very specific to you and your family history. You may have read newspaper reports which sensationalise aspects of your lifestyle that dramatically increase the risks of you developing diseases that are not currently curable. But it’s the currently that I am keen to focus on.
My CEO, Stuart Cummins, recently joined Hilary Evans, CEO of Alzheimer’s Research UK, and Professor James Rowe, the Chair of its Strategic Advisory Board, to discuss the steps you can take to lower your risk of developing dementia, and also the significant reasons to be optimistic, given the huge level of work being achieved by medical research teams around the world, and in the UK, to develop cures.
Having hopefully overcome some people’s hurdles to accessing more information, the other point to push is that starting sooner, rather than later, really does set you up for better outcomes, particularly with regard to your finances.
Taking into account all of the possible outcomes, both positive and negative, forward-looking planning means you will be better prepared for whatever life throws at you. But it’s especially crucial when talking about dementia (or any other mental illness), because any decisions you make should be made when you’re completely mentally capable.
Having hopefully overcome some people’s hurdles to accessing more information, the other point to push is that starting sooner, rather than later, really does set you up for better outcomes, particularly with regard to your finances
At the very least, you should have a current will in place that specifies how you want your estate to be gifted. However, by completing (or revising) a will as part of a holistic wealth strategy, you will also gain a better understanding of your current financial situation, as well as what may form your estate in the future. This should not only help you mitigate inheritance tax for your heirs, but also give you peace of mind.
Top Tip
Nobody likes to think about the possibility of physical and/or mental incapacitation, but face this prospect we must – and in particular the implications for our finances and family. Many of the wealth managers on our panel now have specialist advisers (and often whole teams) dedicated to helping clients plan for and deal with cognitive issues and would be delighted to have free initial conversations, so why not let us put you in touch with some leading firms?
Lee Goggin
Co-Founder
Lasting Powers of Attorney
We also encourage you to have completed and registered lasting powers of attorney (LPAs), which allow you to give people you trust the authority to manage your affairs, particularly if you lack the capacity to make certain decisions for yourself in the futureOne concern that has been addressed is the need to ensure there are sufficient safeguards to allow the entire process to be completed online. As a result, there is now a new system for identification checks, which requires official documents, e.g. a driving licence or passport, to be verified. It was also confirmed that the paper-based system will continue, allowing you to choose the approach you prefer, based on your circumstances. Another important change affects the management of your investments by your attorneys when that’s needed, including the ability to appoint or change discretionary investment managers.
This welcome change will make it easier for families to ensure any funds they control are managed by portfolio providers who deliver the returns their clients need to achieve their wealth goals, without having to create a new LPA or apply to the Court of ProtectionBefore this update, if your attorney wanted to appoint an investment manager, or switch to a new one, specific wording had to have already been included in the LPA to allow them this right. Unfortunately, the insertion of any such instructions was often overlooked, especially since people were unaware a specific clause was required. This welcome change will make it easier for families to ensure any funds they control are managed by portfolio providers who deliver the returns their clients need to achieve their wealth goals, without having to create a new LPA or apply to the Court of Protection.
Safeguarding all of your interests
But before you stop reading as you believe LPAs are only for those who are old, and not for you, it’s worth noting that an LPA is not just about someone taking over all of your affairs. Instead, we think it’s better to view it as a chance to work with someone you love, accomplishing the necessary simple steps together that make life easier for you immediately, but that also allows for decisions to be put in place that are easily forgotten, from switching bills to direct debit so they will continue to be paid, through to ordering large print documents.
And while we can warn of the penalties of filing an LPA too late in life, which will mean the person (or individuals) you have chosen to act on your behalf will have to apply for a deputyship with the Court of Protection – a process that takes months to set up and which may result in less desirable outcomes – I’d like to focus on the benefits, which include:
- It's a robust approach to safeguard your assets and ensure you will continue to be looked after.
- You are in the driving seat with regard to that all important planning, laying down the decisions you want.
- You get to choose who takes care of your future affairs and be confident they will behave in your best interests.
- It’s much more efficient (and less expensive) to put an LPA in place, instead of waiting and being compelled to file an application to the Court of Protection.
- It will provide some relief ahead of any significant stress for you, as well as offering reassurance about your future and for your loved ones.
Please get in touch with a professional wealth planner to talk through the process involved and the safeguards that can be put in place. Whether you have an existing legal adviser, or want help selecting the best one based on your unique circumstances, we also want you to find a wealth manager who can provide you with the most relevant, useful information in the right way for you.
Please get in touch with a professional wealth planner to talk through the process involved and the safeguards that can be put in place
This means not only will that advice be positioned to appeal better to your individual information trait, but it should also mean you – as a very valued client – receive the support as it is intended.
Important information
The investment strategy and financial planning explanations of this piece are for informational purposes only, may represent only one view, and are not intended in any way as financial or investment advice. Any comment on specific securities should not be interpreted as investment research or advice, solicitation or recommendations to buy or sell a particular security.
We always advise consultation with a professional before making any investment and financial planning decisions.
Always remember that investing involves risk and the value of investments may fall as well as rise. Past performance should not be seen as a guarantee of future returns.
