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

Which technique is most appropriate to help a client who tends to postpone starting a SIP for retirement because the decision feels burdensome?

A pre-committed, automated SIP with a scheduled step-up is most appropriate. It uses inertia in the client's favour, removing the need for repeated decisions, and so overcomes procrastination without relying on market sentiment, frequent monitoring or unrealistic return promises.

  1. APresent only recent market highs to build excitement
  2. BUse a default or automatic enrolment style commitment, such as a SIP with a yearly step-up set up at the outsetCorrect
  3. CAsk the client to review the portfolio daily
  4. DOffer a product with a higher return projection

Explanation

Procrastination and inertia are countered by choice architecture, such as automating contributions and pre-committing to step-ups. Daily review increases myopic loss aversion, showing market highs feeds recency bias, and inflated projections are unsuitable and misleading.

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