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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Behavioural Finance in Practice

An investment adviser notices that a client keeps postponing the decision to start a SIP even though she agrees it is beneficial, preferring to 'wait for a better time'. Which behavioural tendency is most directly reflected, and what practical step best counters it?

The client shows status quo bias or inertia, a preference for not changing the current position. The best remedy is to remove friction by using an automated SIP with a small starting amount and a periodic step-up, so that investing becomes the default behaviour.

  1. AStatus quo bias or inertia; set up an automated SIP with a small start amount and step-upCorrect
  2. BOverconfidence; ask the client to review past returns more frequently
  3. CMental accounting; split the money into several goal buckets
  4. DRecency bias; show only the last one-year return of the fund

Explanation

Delaying action and sticking with the current state is status quo bias or inertia. Automation and small default commitments reduce the effort needed to act. Showing recent returns would feed recency bias and does not address inaction.

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