Since the onset of the recent market turmoil, the internet has been flooded with commentators each providing their own version of what to say to investors tostop them over-reacting. Most of them saying the same thing, usually some version of “Keep calm and carry on!”, or “this too shall pass”.
These positions are valid: the best things for any investor to do when faced with market turbulence are generally to a) sit tight, and b) lift your gaze to the longer-term bigger picture. As the late Daniel Kahneman said in his Thinking,Fast and Slow, “Nothing in life is as important as you think it is, while you are thinking about it” … including whatever anxiety-inducing moves the market is making today.
However, if your goal is really to help investors make better decisions, then none of these platitudes are likely to be that effective. Not because they’re wrong.But because people are different. Individual investors each have their own worries, their own emotional responses, and their own financial personalities. And they have different levels of awareness – sending a ‘DON’T PANIC” message to potentially anxious investors who haven’t yet noticed that markets are turbulent will likely induce the very behaviour they’re trying to mitigate.
One size doesn’t fit all
To be effective in calming worried investors and preventing knee-jerk responses, communication needs to be practical, and above all, personalised.
All clients of Oxford Risk’s most up-to-date suitability technology now standardly have accurate measures for each of their customers on at least five distinct dimensions of Financial Personality, and some are collecting data on many more (in fact, we have off-the-shelf scales for over 20). This means they can rapidly identify which of their clients share specific personality characteristics, and thus which are likely to have particular emotional responses to market turmoil. In turn, they will be able to understand which messages, recommendations, or communications are most likely to help their clients or investors navigate this turmoil.
In short, these client data allow Oxford Risk's sophisticated AI-driven Behavioural Engagement Technology to hyper-personalise messages to investors and clients in real-time when markets go crazy.
Constructive communication reflecting investor Composure
For an example of how this differentiation should work in practice, let’s look at investors who differ from each other on only a single dimension of financial personality.
The Composure Scale measures an investor's emotional response to their investment journey and external stimuli, such as news. It reflects their comfort or anxiety with market ups and downs. Low and high composure investors (each about 20% of the population) have very different responses to market volatility and need very different engagement to help them cope with it. This score is a standard output of all Oxford Risk’s suitability technology.
- Low Composure Investors experience significant anxiety about their investments and external market stimuli, leading to emotional reactions and impulsive decisions. They often struggle with market fluctuations and find it challenging to adhere to a long-term strategy.
- High Composure Investors remain calm and focused despite market fluctuations and external news. They manage their investments with greater ease, avoiding emotional reactions and maintaining a disciplined approach aligned with their long-term goals.
The low Composure client will be more important to communicate with in a timely fashion, but to avoid panicking those who are still blissfully unaware of the current chaos, ideally first check your client user data to prioritise those customers who have recently logged into their accounts or contacted their adviser.
To help them navigate turmoil, provide supportive, detailed steps to manage anxiety and avoid impulsive decisions, focusing on reassurance and long-term strategy. Here is a draft email with content specifically targeted at low composure investors:
Subject: Staying Calm During Market Turmoil
Dear [Investor Name],
In times of market turmoil, it's natural to feel anxious about your investments. However, staying calm is crucial to avoid making impulsive decisions that can harm your long-term financial goals. Here are some steps you can take right now to manage your anxiety and maintain a steady approach:
- Review Your Investment Plan: Remind yourself of your long-term strategy and the reasons you invested in your current portfolio. Knowing that you have a well-thought-out plan can provide reassurance.
- Limit News Consumption: Continuous exposure to market news can heighten anxiety. Consider setting specific times to check updates rather than constantly monitoring the news.
- Consult your Advisor: If you feel overwhelmed, your financial advisor can provide objective advice and help you stay on track.
- Focus on Diversification: Ensure your portfolio is diversified to spread risk. A well-diversified portfolio can better withstand market fluctuations.
- Practice Mindfulness: Engage in activities that help reduce stress, such as meditation or exercise. Keeping your mind calm can help you make more rational decisions.
Remember, market fluctuations are a normal part of investing. By taking these steps, you can manage your anxiety and stay committed to your long-term goals.
Best regards,
[Your Name]
High Composure investors have very different emotional requirements. For them, your communication should emphasise maintaining their naturally disciplined approach with strategic advice, focusing on leveraging their calmness and staying aligned with long-term goals. Use the opportunity to encourage rebalancing as asset values shift, and for those with unused cash you might even use market drops as valuable opportunities to encourage them to get fully invested, a strategy that should be strongly avoided for anxious investors.
Hyper-personalisation
Even using the single Composure dimension results in fundamentally different communication and recommendations for groups of investors. But the real power comes from personalising for multiple dimensions of investor personality simultaneously. So, for low composure clients, we may wish to tailor each message for their scores on two of the other financial personality dimensions our technology measures as standard:
Investor Confidence evaluates how secure and capable an investor feels regarding their financial decision-making skills. It reflects their self-assessed experience, awareness of market conditions, and comfort with managing investments amidst market fluctuations.
Ideal engagement with low Composure investors differs depending on their confidence levels.
- For Low Composure and Low Confidence investors (12% of population): convey simple, supportive steps with a focus on reassurance and building basic confidence.
- For Low Composure and High Confidence investors (5%): use strategies that leverage existing skills and knowledge, with a focus on maintaining composure and rational decision-making.
And taking the first of these groups, we can further differentiate for those with low vs. high Investor Impulsivity, which measures an investor's tendency to make quick, emotionally driven decisions regarding their investments and spending habits. It assesses how much an investor relies on instinct and immediate reactions rather than careful consideration and long-term planning.
For those who are in the 12% of low Composure, low Confidence investors, the key differences in communication between those who are also low impulsivity (3%) and high impulsivity (2%) are:
- Decision-Making Speed: For low impulsivity, focus on a steady, methodical approach; for high impulsivity, emphasise pausing and setting clear rules.
- Information Intake: Low impulsivity investors are guided to simplify and reduce overwhelm; high impulsivity investors are advised to limit updates to prevent rash decisions.
- Guidance: Both groups are encouraged to seek professional advice, but the high impulsivity group is particularly urged to rely on this guidance to counteract impulsive tendencies.
- Stress Management: Both groups are advised to engage in stress-reducing activities, but the emphasis on controlling emotional responses is stronger for the high impulsivity group.
- Routine and Planning: Low impulsivity investors are encouraged to establish routines, while high impulsivity investors are guided to create and adhere to written plans to prevent impulsive actions.
Behavioural Engagement Technology
Oxford Risk’s Behavioural Engagement Technology can rapidly identify key combinations of your clients’ financial personalities on these dimensions and many more, and make tailored communications automatic for any future market events, helping you deliver on your Consumer Duty responsibilities by using behaviourally targeted engagement to improve client outcomes.
Through years of testing behavioural interventions in practice, and scouring the academic literature, we have built extensive libraries matching communications, nudges, and recommendations to investor personality dimensions for a number of use cases, of which market turbulence is only one. These libraries enable the technology to match users to the most effective recommendations at the push of a button, and in conjunction with Large Language Models to automatically product draft communications for highly precise client personas. Indeed, the example email above for low composure investors was entirely drafted by ChatGPT, using our financial personality scales as prompt inputs, and drawing on our intervention libraries for content.
No longer should we be trying to calm anxious clients with trite platitudes about staying calm and carrying on, when we can provide precise, practical, and personalised advice designed to resonate with each as an individual.
To find out more, click here to download our whitepaper: Behavioural Engagement Technology now.
Thumbnail image by Jason Briscoe on Unsplash
