Don’t underestimate the value of a simple list

Three behavioral finance researchers are being recognized by the Financial Planning Association for their research on the effectiveness of basic checklists as behavioral guardrails.

The FPA announced this week that Samantha Lamas, Ryan O. Murphy and Ray Sin are the recipients of the 2020 Montgomery-Warschauer Award for their paper “Goals-Based Financial Planning: How Simple Lists Can Overcome Cognitive Blind Spots,” published in the July 2019 Journal of Financial Planning.

The research addressed common behavioral biases that may cause investors to neglect their goals, suggesting that advisors use checklists as part of a process to help end-clients overcome their superficial responses when prioritizing their financial goals.

Respondents were asked to identify and list their goals in order of priority; then they were given a simple checklist that identified common financial objectives. After that, they were asked to revisit their goals. In the study, 73% of respondents ended up changing one or more of their top three goals after using the checklist. About 26% of the total respondents changed their top financial goal.

The researchers likened their checklist to a restaurant menu, explaining that almost everyone has had the experience of finding something on the menu that they had no idea they were hungry for, and that “looking at a simple list of options can help us uncover what is going on in our own heads.”

Lamas, Murphy and Sin conducted their research while at Morningstar. Lamas continues to work there as a behavioral researcher, while Murphy remains the head of decision sciences for Morningstar Investment Management. Sin, a behavioral scientist, has since moved to Zelle.

The research will be presented at the virtual 2020 FPA Digital Annual Conference, which will take place virtually from September 30 to October 2, 2020.

At the request of the three recipients, the FPA will make a $1,000 donation to the NAACP.

The Montgomery-Warschauer Award recognizes a paper published in the Journal of Financial Planning considered to be the most outstanding contribution to the betterment of financial planning in the preceding year. It is named after Henry Montgomery, who helped create the journal, and Tom Warschauer, its first academic editor.

This year, 18 peer-reviewed papers were considered for the award, with the winner determined by a majority vote from the Journal Editorial Advisory Board and editorial staff.