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Wealth managers ‘regularly surprised’ by clients’ investment decisions – Oxford Risk research

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New European research from behavioural finance experts Oxford Risk reveals that wealth managers admit to being regularly surprised by their clients’ investment decisions despite claiming to have a very good understanding of their psychological profiles.

Its study with wealth managers across Europe who collectively manage assets of around €327 billion, found that around seven in ten (68%) admit that they are surprised by the decisions their clients make. This is compared to just 8% who say they are never surprised by clients’ decisions. The same survey revealed that nearly two-thirds (62%) believe emotional decision-making costs the average investor over 100 basis points of investible wealth each year which highlights the perceived value of understanding investors’ behavioural profiles.

Despite this, 80% of wealth managers surveyed claim that they have a very good understanding of their clients’ psychological profiles when it comes to investments.

Of wealth managers questioned in the UK, France, Italy, Spain, and Ireland, 82% state they have good tools and systems in place to understand their clients’ psychological profiles, compared to just 4% who don’t. 74% say they have sufficient training to understand their clients’ psychological profiles, and just 3% admit to not having this. However, when asked how they asses their clients’ psychological profiles, 67% rely mainly on their own intuition. Only 10% say they don’t do this.

Greg B Davies, PhD, Head of Behavioural Finance, Oxford Risk said: “This research points to worrying trends amongst advisers who believe that they have the right training and tools in place to accurately measure their clients’ psychological profiles, yet the vast majority still admit to relying on their own intuition.

“Current methods used by many wealth managers clearly aren’t giving them the information they need and with many more only relying on their own intuition, there is a real danger of not just surprises but more serious financial implications in the future, which could have easily been avoided if a clients’ psychological profile was truly understood.”

Oxford Risk, which builds software to help wealth managers and other financial services companies assist their clients in making the best financial decisions in the face of complexity, uncertainty, and behavioural biases, has developed proprietary algorithms which rank products, communications, and interventions for their suitability for each client at a particular time.

Its behavioural tools assess financial personality and preferences as well as changes in investors’ financial situations and, supplemented with other behavioural information and demographics, build a comprehensive profile. Oxford Risk’s financial personality tests can measure up to 20 distinct dimensions, of which six reflect preferences for ESG investing.

It believes the best investment solution for each investor needs to be anchored on stable and accurate measures of risk tolerance. Behavioural profiling then provides an opportunity for investors to learn about their own attitudes, emotions, and biases, helping them prepare for the anxiety that is likely to arise. This should be used to help investors control their emotions, not define the suitable risk of the portfolio itself.

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