What holds clients back from naming a TCP?

Behavioural insights research from OSC uncovers possible barriers and biases among seniors

What holds clients back from naming a TCP?

Last month, the Canadian Securities Administrators announced amendments to NI 31-103 aimed at enhancing protection of older and vulnerable clients. Expected to come into force on December 31, the changes are designed to provide tools and guidance for registered advisors to deal with issues of financial exploitation and diminished mental capacity.

More specifically, the changes centred around the use of trusted contact persons (TCPs) and temporary holds. In the case of TCPs, the CSA notice said registrants will be required to “take reasonable steps” to get the name and contact information of a person from vulnerable clients, as well as clients’ written consent to reach out to the TCP in prescribed circumstances.

While the intention behind asking clients to specify a TCP may be noble, getting clients to act can be challenging. In numerous comments submitted during consultations on the changes, some registrants expressed concern that asking for a TCP may cause strain on the advisor-client relationship. For many advisors, suggesting that a client may be unable or ill-equipped to make their own decisions can be difficult.

As firms toe the line between safeguarding vulnerable clients and respecting their decision-making autonomy, it’s worth revisiting a study published late last year by the Ontario Securities Commission (OSC) titled Protecting Aging investors through Behavioural Insights.

Drawing from research conducted by BEWorks, the paper noted that senior investors’ willingness to appoint a TCP may be affected by three key behavioural biases:

  • Optimism bias – people’s tendency to underestimate the likelihood of negative events;
  • Avoidance of negative emotions – people do not wish to imagine scenarios that elicit unpleasant feelings, including the possibility that they may be exploited or lose their mental capacity; and
  • Illusory superiority – some people may overestimate their abilities relative to others, leading them to conclude that they will not be needing the same interventions or assistance other people do.

After examining TCP information forms used in other jurisdictions and firms that already solicited such information from senior clients, BEWorks also found numerous barriers that could decrease someone’s likelihood of appointing a TCP.

“For example, there was a lack of clarity about the conditions under which a TCP would be contacted and the types of information that would be shared with them,” the paper said. “Furthermore, the consequences associated with inaction were not clearly highlighted.”

The researchers also suggested that clients could hesitate to name a TCP because they do not know what attitudes other older adults may have towards appointing one, and they may feel that the support mechanisms that have protect them so far will continue to do so in the future.

“Another aspect of the evaluation process that can affect whether an older investor is willing to appoint a TCP is their state of mind as they are making this decision,” the paper said.

One way to spur action, the researchers suggested, is through “negative priming.” When an older investor is asked to reflect on a time when they made a poor financial decision, they may be more likely to take steps to prevent similar situations from recurring in the future. On the flip side, “positive priming” can be done by prompting a client to recall a time when they made a smart financial choice.

“[P]ositive or negative priming can be used as a nudge to implicitly affect an investor’s risk preferences and increase their willingness to appoint a TCP,” the paper said.


Follow WP on FacebookLinkedIn and Twitter