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Investigating Behavioural Insights and Investment Personality: Episode 2 of EmbarkPod

This month, Greg Davies from Oxford Risk and Be-IQ’s Neil Bage discuss behavioural insights, investment personalities and the tech that goes behind helping people make informed decisions in the second episode of EmbarkPod.

By understanding someone’s financial personality better, we are able to help people better understand their investments and help them financially prepare themselves for later in life according to Greg Davies.

Although many people are quite literally investing in this approach, others may still feel as though it is an invasion of privacy – it depends in how you reveal these insights is key… as long as everything is presented as evidence-based, Neil Bage argued.

Greg Davies and Neil Bage took part in Embark Group’s second EmbarkPod podcast, hosted by Roger Hearing, presenter of the BBC World Service’s flagship news and current affairs programme Newshour.

Using recent market activity as an example, Roger posed the question that with investors having experienced activity such as market crashes and a rise in tech investment, does this explain that decisions are being swayed by human behaviours and feelings?

“It explains a lot of what is going on” Davies said.

“Every single financial decision [that] we make as humans, there is a tension between the right thing to do for long-term financial needs, and the comfortable thing to do right now. These two things are at odds [with each other] because typically what feels comfortable to do in the moment is often quite a long way from what the right thing to do is for the long-term. That gets exacerbated in times of stress… so what we have is a situation where everyone’s emotional time horizon gets shorter and shorter, and they start making decisions that are really about making them feel less nervous today. That can be very costly for their long-term decision making.

“It’s not irrational to do that [react/jump out of investments quickly] because you get something in return – a sense of relief that at least if this gets any worse; I’m out of the markets. It’s not irrational, it’s just phenomenally expensive.”

Bage said that education is at the heart of this, that advisers need to better explain things to their clients on the highs and lows of stock market investing. However, when a perfect storm arises – i.e. when your client is experiencing high levels of anxiety surrounding investments and markets are crashing, it does create conflict.

“People often feel like in order to take action, you have to physically do something; whereas without realising it, when we don’t do anything, by default that is taking action... Behavioural insights can tell you an awful lot of stuff about people, but it needs to go hand in glove with you working with them to tell them ‘you are investing in a market, markets are volatile, sometimes they go up, lots of times they go down; ride this roller-coaster with us and we’ll get you to the end’ – the end being their financial plan.”

Davies and Bage were also asked about several other topics in the podcast.

On Advisers “hand-holding” investors

Neil Bage: “Life throws lots of things at us – today things could be fine, tomorrow it could be catastrophic. By having someone who can give me realism, grab me by the hand and walk me through this turmoil [can be beneficial]. One of the biggest things I’ve seen during the pandemic in an advisor and client relationship, is those advisors who have picked up the phone [and asked them] ‘are you ok?’ That’s it. They haven’t asked about their financial plans, they’ve just asked if they are OK.”

“It’s those conversations - that reassurance – is worth its weight in gold.”

How good are the algorithms?

Greg Davies: “Validation is very important - there are a number of fly-by-night, snake oil peddlers in the profiling world. There are a certain amount of characteristics that you need to test or look at to say ‘are we measuring the right thing here?’… we desperately need the algorithms and the technology to help advisers get to a more consistent and more objective diagnosis that is in no way there to take the process of what the client should do away from the advisor. It’s there to empower and enrich discussions.”

Listen to EmbarkPod

You can listen to Embark Group’s EmbarkPod – and all future episodes – on a number of major podcast platforms, including Apple, Spotify and Tune In.

Alternatively, listen by clicking this link

About EmbarkPod

EmbarkPod is a show that looks to bring together thought leaders, finance professionals and commentators to discuss - and debate - hot topics within the FinTech industry; hosted by Roger Hearing.

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