These are the core principles that define Oxford Risk’s approach to suitability. These principles are united by applying academic insights to improve investor outcomes. They are about behavioural finance in real life.
The trouble with cool heads is that they make plans for other cool heads, when in fact they should be making plans for an entirely different beast.Selecting good investments is important, but achieving good investment outcomes is more so.Personal feelings may feel too nebulous for the numbers-driven world of investing. Yet investing is a human activity, and humans buy stories, not numbers.
Behavioural Economics is a rapidly expanding field and everyday new research is being developed in academia, tested and implemented by practitioners in financial organisation, development agencies, government ‘nudge’ units and more. This interview is part of a series interviewing prominent people in the field.
Never gamify at the expense of accuracy. Gimmicky games trivialise risk tolerance, they do not test it.Helping clients navigate complexity is better than pretending it can be cost-effectively avoided. The real returns from an understanding of the customer are preferable to an artificial understanding by the customer.Humans and tech perform best when they play together. Managing moving financial and emotional parts benefits from blending human and technological qualities.
The lowered valuations of assets is not important, only the value when you need to withdraw years in the future. You’re much better to sit tight and wait, rather than to exit when markets are down.Try to avoid watching the markets day to day as this will just increase your anxiety to no useful end.Focus on the things that you can control: postpone discretionary spending wherever possible and put inessential financial goals on the backburner for the time being.
Our market emergency kit profiles investors along six key dimensions of financial personality, and helps identify what they should be doing differently to help them weather the current storm. We've made this tool free for all advisers to test out and use with their clients.
Do not tell people how to behave. Predict how they’re going to behave and plan appropriate preventative action. Use a solution that is psychological, preventative, personal, perpetual, and planned for.
People buy stories, not investments. Without a supporting framework of fairytale-esque familiarity, diversification leads to discomfort.If diversification causes distress, it ceases to be such an obviously smart idea. A certain amount of home bias can be useful in buying emotional comfort at relatively low cost, but most investors veer too much to the familiar, and pay too much as a result.While changes to investments could be called for, changes to the decision-making processes and communications that surround the investments are a more cost-effective means to the same ends.I.e. direct what you will learn from reading statements.
Form must follow function. Capturing clicks is no use without first capturing valuable, usable, client insights.There must be solid scientific lines between the measurement of different components of a suitable risk level.In investing, it is not the number of inputs, but the number of moving parts that constitutes the most relevant complexity for individual investors.