1. ‘LOSS MOTIVATION’ MODULE
BEHAVIOURAL ECONOMICS
‘LOSS MOTIVATION’ MODULE
Your Financial Footprint
This is a 30 minute module

2. This is the fourth of four modules…
Attention grabbers to explain what it is and its value
Introduction to behavioural economics
New and existing client meetings to focus on advice
Reframing
Showing how best to use existing provisions
Consistency
Value through tax and risk management
Loss motivation
This is the fourth of four modules…
This is the 4th module in the series on loss motivation
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3. Our aim
Share insights into some typical Behavioural Biases that may drive clients emotional responses at ‘advice meetings’
Help you better understand the buying brain so you can better articulate your value
Support you in delivering a profitable and sustainable service that clients truly value
How you articulate that value is key, so our aim is to help you with that

4. Objectives Understand Demonstrate Agree
Agree an commit to an appropriate implementation plan
Demonstrate
Demonstrate how to implement at least one example of using this
Understand
Understand at least 1 key behavioural bias that drives decisions to help a client better understand the value you add
There are 146 recorded behavioural biases – we are going to cover just one today, hoping you may grasp more later

5. Your objectives and challenges?
If presenting to a group ask the group what their objectives for the session are and any specific challenges they are experiencing
Facilitate and check understanding
In the initial parts of client meetings (new & existing)

6. Loss Motivation So today’s presentation is not about MIFID II but..
Loss motivation and concorde
In the first 5 minutes

7. Losses loom larger than gains
v(x) 6 4 2
-20
-15
-10 -5 5 10 15 20 x -2 -4 -6
Oct. 9th 2002
Daniel Kahneman receives the Nobel Prize in Economic Sciences
Lets first look at the science behind it.
Main characteristics of prospect theory:
Value of an outcome is defined in terms of gains and losses according to deviation from a reference point.
The value function for losses is different in shape than the value function for gains to express that….
Losses loom larger than gains
Value is always defined with respect to a reference point which can shift by framing the outcome as losses versus gains
Preferences are a function of “decision weights” which do not always correspond with probabilities. Decision weights tend to overweight small probabilities and underweight moderate and high probabilities.
Daniel Kahneman received the Nobel prize for this work. -8
-10
Prospect Theory

8. This diagram illustrates the depth of the feeling of loss which is far greater than the feeling of pleasure

9. Value and propensity to act is
accelerated by a feeling of potential loss…
“Roughly speaking, losing something
makes you twice as miserable as gaining
the same thing makes you happy.”
Loss motivation is thus very powerful
‘Nudge’, Thaler and Sunstein 2008 9

10. Ask the group: So Why did Concorde stop flying?
Answer: Was not profitable.
But what happened when they announced it was being retired? Its profit went up as people were rushing to get the last flights on Concorde before it was gone forever.
The same reason why ISAs are only sold by law in March?

11. Hear what you’ve been missing
45%
Hear what you’ve been missing
When Bose brought out a new speaker they simply changed the word ‘new’ to a loss motivation statement, i.e. hear what you’ve been missing and sales increased by 45%
New!

12. Hurry while stocks last!
Sign in the Petrified Forest, Arizona
Our heritage is being vandalised by the theft of 14 tons of wood each year
Hurry while stocks last!
Be careful with it.
When authorities tried to tug on emotions to leave the precious resource alone, …thefts went up as it felt like it was more scarce and might disappear!

13. Loss motivation accelerates with salience
Comprehensive advice does not need to be onerous or time consuming
Linking to the advice area increases salience
How do you link ‘protection’ to the areas of mortgage, investment and retirement to become more salient?
Loss motivation accelerates with salience

14. Mortgage Investment Retirement Wealth Protection Wealth Preservation
Wealth Creation
Investment
Wealth Protection
Property Wealth
Retirement
Wealth Protection
Wealth Preservation
Property Wealth
Look at these areas.
Lets use handout 1 and aim to fill it with linking statements..
Lets show you one to help you get your eye in on the next slide…

15. Mortgage Investment Retirement
How sure are you that you have eliminated the risk of losing your home?
Should anything happen to you, how do you want the value of your home distributed between family, friends, charities and the tax man?
The biggest impact on monthly cost is the term, so would you like to repay before or after you retire?
Investment
How sure are you that you have eliminated the risk of eroding your wealth due to ill health?
Should anything happen to you before you get to spend your monies, how do you want that distributed?
How will you replenish any investments you use to clear your debts?
Retirement
How much might you need if you were to retire early due to ill health?
Should anything happen to you before retirement, what income needs to be paid to who?
Would you prefer to clear your debt before retirement or ensure you can continue to pay it after that point?
Use handout one and get the group to link to the advice area in a salient way, avoiding product where possible

16. Efficient frontier?
Another example is the investment arena…
And how about this.. Loss motivation can accelerate and condense value..
We all know about the efficient frontier…two pages on Wikipedia to explain it.
Loss motivation shows the value and sums it up in 2 lines…!!!
“Not take unnecessary risk with your current portfolio “
“Not miss out on getting a better return for your level of risk”
“Not take unnecessary risk with your current portfolio”
“Not miss out on getting a better return for your level of risk”

17. Turning BENEFITS into LOSS MOTIVATION STATEMENTS…
Protect your hard earned money in valuable tax shelters
Ensure the right tax wrapper helps your money grow
We rebalance your portfolio to keep it in line with your objectives
Boost your pension fund with extra money from the Government
Ensure you do not miss out on time sensitive allowances, that once they go are gone forever
Next exercise using handout 2
Rewrite the benefits statements on the left into loss motivation statements on the right.
Provide one example and then leave them to work on it.
Ask what impact the use of the words underlined on the left has on the sentence?

18. Turning BENEFITS into LOSS MOTIVATION STATEMENTS…
Protect your hard earned money in valuable tax shelters
Ensure the right tax wrapper helps your money grow
We rebalance your portfolio to keep it in line with your objectives
Boost your pension fund with extra money from the Government
Ensure you do not miss out on time sensitive allowances, that once they go are gone forever
When you spend your money, you retain as much of it as possible (and do not lose any unnecessarily to tax)
Make sure you do not miss out on getting the return your level of risk taking allows
Help ensure you do not miss out on valuable monies that you may be owed
Next exercise using handout 2
Rewrite the benefits statements on the left into loss motivation statements on the right.
Provide one example and then leave them to work on it.
Ask what impact the use of the words underlined on the left has on the sentence?

19. Turning BENEFITS into LOSS MOTIVATION STATEMENTS…
Review your current plans to see how much money you can save
Help ensure you keep your home should the unexpected happen
Help ensure you and your family have money available when you need it the most
We place your life cover in trust to ensure the right money goes to the right people at the right time
See if you can benefit from better cover, often for a lower premium
Ensure you are not wasting your hard earned money by paying too much for your cover / peace of mind
Next exercise using handout 3
Rewrite the benefits statements on the left into loss motivation statements on the right.
Provide one example and then leave them to work on it.

20. Turning BENEFITS into LOSS MOTIVATION STATEMENTS…
Review your current plans to see how much money you can save
Help ensure you keep your home should the unexpected happen
Help ensure you and your family have money available when you need it the most
We place your life cover in trust to ensure the right money goes to the right people at the right time
See if you can benefit from better cover, often for a lower premium
Ensure you are not wasting your hard earned money by paying too much for your cover / peace of mind
Eliminate the risk of you and your family losing your home
Make sure you do not lose the growth you have already made, by having to draw on it earlier than planned
Help you not lose money to the tax man, ethically and legally
Not lose out on better cover that is now available….
Next exercise using handout 3
Rewrite the benefits statements on the left into loss motivation statements on the right.
Provide one example and then leave them to work on it.

21. How will you remember to implement this?

22. Frameworks Introduction Guidelines (using Trust components) Template
See our guides to using frameworks to help with this
These can be downloaded and personalised ready to use with clients.
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23. We also have some example words for you
It aims to provide some prompts and examples that you can personalise and implement in your own style
It is not designed to be memorised, scripted and repeated verbatim
It is designed to stimulate your thoughts and process, so a client can understand better the value that you add
See handout

24. Real play experiment time
If you wish to explore further we have included real play scenarios
You can focus just on the area covered in this module…or
You can link the three areas of ‘reframing – consistency – loss motivation’ together in the same scenario if you wish
See real play briefs

25. More of: Less of: Start doing: Stop doing: Your key learnings?
What have been your key learnings?
What are you going to do more of?
What are you going to do less of?
What are you going to start doing?
What are you going to stop doing?

26. References
Kahneman, D. (2012). Thinking, fast and slow. Penguin Books. Retrieved from
Kahneman, D., Tversky, A., & Tversky ’, A. (1979). Prospect Theory: An Analysis of Decision under Risk. Source: Econometrica, 47(2), 263–292. Retrieved from
Luise, V. (2005). Facts and Fears: Understanding Perceived Risk. In Policy and Practice in Health and Safety (Vol. Supplement, pp. 65–67).
Slovic, P., & Lichtenstein, S. (1983). American Economic Association Preference Reversals: A Broader Perspective Preference Reversals: A Broader Perspective. Source: The American Economic Review, 73(4), 596–605. Retrieved from
Slovic, P., & Peters, E. (2006). Risk perception and affect. , 15(6), Current Directions in Psychological Science, 15(6), 322–325.
Sunstein, C. R., Zeckhauser, R., Sunstein, C. R., Zeckhauser, R., & Ramsey, F. P. (2011). Overreaction to Fearsome Risks. Environ Resource Econ, 48, 435–