The share of investors whose behaviour is affected by recent news events or experiences increased to 58% in 2021 (35% in 2020) while confirmation bias – seeking information that reinforces existing perceptions – more than doubled to 50%.
Framing – making decisions based on the way the information is presented – along with a preference for familiar (domestically domiciled) companies and playing it safe to avoid losses were all significantly higher in the 2021 survey.
“There has never been a more critical time for advisors to incorporate behavioural finance techniques into their practices to understand and help clients stay on course to reach their long-term financial goals,” said Omar Aguilar, PhD, chief investment officer and head of investments at Schwab Asset Management. “The combination of pandemic-driven uncertainty, market volatility, and speculative investing trends have culminated in an environment where behavioural biases thrive.”
Aguilar has been a practitioner of behavioural finance in asset management for over 20 years.
What can FAs do?
The use of behavioural finance techniques can be of great benefit to FAs and the BeFi Barometer 2021 has identified those that are most effective include: taking a long-term view, integrating goals-based planning, implementing systematic processes, cautioning investors to stay calm, and increasing portfolio diversification.
