For Financial Professionals in the US

Use the MINDSPACE framework to better understand investor behavior

Retirement Director Ben Rizzuto discusses how financial professionals can use the MINDSPACE framework – and findings from JHI’s Retirement Confidence Report – to guide client conversations during challenging market environments.

Ben Rizzuto, CFP®, CRPS®

Ben Rizzuto, CFP®, CRPS®

Wealth Strategist

Mar 17, 2023
7 minute read

Key takeaways:

  • Released at the end of 2022, Janus Henderson’s Retirement Confidence Report sought to gauge investor sentiment given a challenging market and economic environment.
  • Understanding how clients are feeling is helpful, but advisors must then talk through those feelings and recommend best next steps.
  • One tool advisors can use to guide these conversations is the MINDSPACE framework, which identifies different forces that can drive our behaviors and decision making.

Late last year, Janus Henderson released its first annual Retirement Confidence Report. The report was based on our survey of 2,000 investors age 50 and older, which included questions regarding financial markets, inflation, investing behaviors, and how investors may be feeling about the future.

My colleague Matt Sommer summarized the findings and discussed how they can help advisors strengthen client relationships. (You can also read the full report here.) I love these types of surveys, as they help us understand how our clients and investors in general are feeling.

One of my favorite takeaways from Matt’s article was this quote:

The ability to assess investor confidence levels is a critical aspect of helping clients work toward their goals. And in a difficult environment like the one we’re currently experiencing, it’s more important than ever for financial professionals to stay attuned to how clients are feeling about their financial future.

When it comes to managing investor behavior, it’s great to know how clients are feeling, but that’s only half of the equation. From there, we need to figure out how to talk them through their feelings and recommend the best next steps.

Over the years, insights from behavioral economics, psychology, and other fields have helped us better understand how investors think about money and how we can provide guidance based on these thoughts and emotions. One of the key takeaways from these insights is the idea that we as humans can make either reflective or automatic decisions based on the information we are given. A rational, sensible, economically minded human would take the time to make a reflective decision. However, as we all know, in many cases we rely on the automatic side of our brains to make quick decisions without much thought.

One framework that we find particularly helpful that harnesses these automatic decisions is the MINDSPACE framework. The framework was one of the first to be used in making policy decisions and started with an initiative by members of the UK Cabinet Office. The framework has since been used in projects as diverse as reducing gang violence in Cincinnati and increasing recycling in the UK.1

Each letter in MINDSPACE stands for a force that may drive our behaviors and decision making.

Messenger We are heavily influenced by who is communicating information.
Incentives Our responses to incentives are shaped by predictable mental shortcuts, such as the strong desire to avoid losses.
Norms We are heavily influenced by what others do.
Defaults We “go with the flow” of pre-set options.
Salience Our attention is drawn to novel things that seem relevant to us.
Priming Our actions are often influenced by subconscious cues.
Affect Our actions can be powerfully shaped by our emotional associations.
Commitments We seek to be consistent with our public promises and to reciprocate actions.
Ego We act in ways that make us feel better about ourselves.

Source: The Decision Lab, Mindspace Framework reference guide.


So, how might a financial professional use this framework – in conjunction with the findings from our Retirement Confidence Report – to guide their client interactions? I’ve outlined a few possible scenarios below.

Incentives: Put market and inflation concerns in perspective

When asked how concerned investors were about the stock market and inflation, 86% said they were “very concerned” or “somewhat concerned” about inflation, with 79% saying the same about the stock market.

In this case, we could use the Incentives effect as it deals with mental shortcuts like loss aversion, hyperbolic discounting, and mental accounting. A client interaction might play out like this:

Advisor: Are you concerned about the stock market and inflation?

Client: Yes, I am very concerned!

Advisor: That is understandable. Let’s talk a bit more about what specifically is making you uncomfortable – is it the drop in your account, the impact those losses have had on your day-to-day lifestyle, or something else entirely?

This simple reply does a couple of important things. First, it lets your client know that it is OK to be feeling the way they are. Second, it prompts the client to tell you a bit more about his or her feelings. Does the concern stem from the client’s investment account dropping below $1 million or some other arbitrary amount they may have set in their head? Or has increased inflation and a lower account balance – especially for younger retirees or those in good health – led to concerns about living longer in retirement with less?

Regardless of the answer, you now have a better idea of what is causing your client’s anxiety. Knowing this, you can then provide next steps or recommendations that aim to address the source of those emotions, which ultimately will influence the investor’s behavior.

Norms: Discourage allocation shifts due to the negative market performance

We were heartened to find that only 14% of respondents had moved money out of stocks or bonds and into cash because of the performance of the financial markets and rising inflation.

This relatively low percentage feeds directly into a Norms-based effect that a financial advisor could use when meeting with a client who is nervous about the markets and tempted to reallocate to cash. Norms-based effects leverage the idea that we as humans are influenced by what others are doing. Whether it’s fashion, hairstyles, or stock-trading trends, in many cases we will follow the crowd rather than rely on our own best judgment.

This scenario might play out as follows:

Client: The market has me nervous. I think it would be best if I sold my positions and went to cash.

Advisor: While every client situation is different, I can tell you that most of our clients are staying the course.

As a follow-up to this, you could cite an anonymous example of a client, or mention that you just saw a survey that said the majority of investors are keeping their money invested in stocks and bonds even though the market is down.

Messenger: Offer advice from an expert

Another approach in the above scenario could be to use the Messenger effect. As noted in the MINDSPACE framework, we are influenced by who is communicating information to us. This is where “experts” might offer a valuable third voice to the conversation. For example:

Client: The market has me nervous. I think it would be best if I sold my positions and went to cash.

Advisor: I understand that volatility can be nerve-wracking, but during periods like this I always remind myself of a quote from Warren Buffett: “The stock market is a device to transfer money from the impatient to the patient.”

Most people would agree that Mr. Buffett has had a successful career in investing and may be able to provide some expertise. This quote not only comes from a successful investor, but also reaffirms the idea of staying the course and long-term investing, which is most likely the tactic an advisor would want a client to follow in this case.

Talking clients through difficult periods can be challenging. We always say every investor’s situation is different, but each client’s behaviors are also driven by their intricate blend of their unique personality, background, beliefs, and motivations. That’s why having tactics and ideas at your disposal that help tap into those nuances can make these conversations a bit easier. Frameworks like MINDSPACE offer some great tools for advisors and can help clients think more reflectively and thoughtfully about their current situation and long-term goals.

1 MINDSPACE Framework reference guide, The Decision Lab, 2023.