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Prudent Corporate

18 Jul 2025

How as a MFD You Can Overcome Client’s Familiarity Bias

Mutual Fund Distributors know the feelings, the habits, and the fears that influence the investment decisions of their clients. You might know that even if you give them a well-researched, goal-oriented solution, they may question you like this:  "I’ve heard about this fund on TV or from someone known, let’s go with that one." This pattern isn’t about logic or performance; it’s a psychological behaviour known as familiarity bias.  Whether you’re new to the mutual fund distribution business or helping others explore How to Become an MF Distributor, understanding and addressing this behavioural bias is critical to improving investment outcomes and client satisfaction. What Is Familiarity Bias? Familiarity bias is the impulse to like the known more than the unknown. For investors, this, however, generally means that they become strongly inclined to: Stick to a few well-known mutual fund schemes. Only reinvest in the funds that they have. Avoid the schemes, AMCs, or categories that are new or not well-known. Giving brand familiarity more importance than performance or suitability. Although this emotion-driven method may seem “safe” to your clients, it can limit portfolio diversification, generate less returns than expected and cause delays in achieving the set goal. How You Can Help Clients Overcome Familiarity Bias 1. Respect Their Perspective First Investors’ choices are usually based on past performance, familiarity, or advice from people they trust.  Instead of pointing out their existing portfolio issues, it's better to acknowledge their commitment and guide the conversation toward a review. This helps create a constructive discussion focused on aligning their investments with current goals, while reducing the chances of pushback. 2. Use Goal-Based Framing As a Mutual Fund Distributor (MFD), focusing your conversations around the client’s financial goals creates stronger engagement and clarity.  When you frame investment strategies in the context of what the client wants to achieve, such as building long-term security or preparing for future responsibilities, it becomes easier for them to connect emotionally and practically with your guidance. This approach enables you to make informed decisions based on a clear understanding of outcomes, rather than relying solely on market data. 3. Start with Small Allocations Mutual Fund Distributors shall introduce change gradually through small allocations can be an effective way to overcome client hesitation.  Many investors are naturally cautious about altering familiar investment patterns, especially when it involves shifting their entire portfolio.  When you recommend incremental diversification, such as allocating a modest percentage of your investment to a new strategy, you are easing them into the process of change without creating resistance. This approach respects their comfort zone while giving them a chance to observe performance over time.  It removes pressure, builds trust, and creates space for informed decisions. As clients gain confidence through real results, they often become more open to broader portfolio adjustments. 4. Use Data As a Mutual Fund Distributor, using clear and tailored data makes your recommendations stronger. Clients often miss technical jargon, but they notice when data is shown visually and in context. A straightforward comparison of trailing returns, volatility, and risk-adjusted metrics helps clients see the differences between their current investments and your suggestions. By using relatable scenarios or projections, you can turn numbers into meaningful insights. Instead of relying on opinion, you provide evidence. This builds trust, eases resistance, and reinforces your role as a data-driven guidance focused on their long-term goals. 5. Link New Strategies to Familiar Concepts When introducing a new investment strategy, connect it to something the client knows and trusts. This approach links familiarity with innovation, making the new idea less intimidating.  For instance, if they know how a traditional large-cap fund works, explain a dynamic asset allocation fund.  It has a similar goal but offers more flexibility in different market cycles. Linking new ideas to what clients already know makes it easier for them to understand. This cuts down on confusion and helps them accept information better. As a result, they can make more informed decisions.  Conclusion For Mutual Fund Distributors, overcoming a familiarity bias is vital. It is common for clients to stick to schemes they are familiar with or have chosen in the past. Your role is to guide them beyond these limits while considering their worries.  You can do this by aligning your recommendations with their personal goals. Make small changes, present clear data, and link new ideas to what they already know so they are able to process them more easily. This approach helps clients make better, forward-looking investment decisions.