BeFi Barometer 2021

Advisors Witness Dramatic Increase in Behavioral Biases Among Clients Amidst Pandemic Uncertainty

In a year characterized by ongoing uncertainty from the COVID-19 pandemic and heightened retail investor interest in the markets, financial advisors reported a surge in behavioral biases among clients, according to the BeFi Barometer 2021. This is the third year of the survey commissioned by Schwab Asset Management in collaboration with the Investments & Wealth Institute and Cerulli Associates.

Advisors witnessed significant upticks in many common behavioral biases among clients:

Behavioral biases affecting client investment decisions	2020	2021
Recency bias: Easily influenced by recent news events or experiences	35%	58%
Confirmation bias: Seeking information that reinforces existing perceptions	24%	50%
Framing: Make decisions based on the way the information is presented	26%	44%
Familiarity / home bias: Preference to invest in familiar (U.S. domiciled) companies	27%	43%
Loss aversion: Playing it safe or accepting less risk than they should tolerate	30%	43%

Behavioral biases and client interest in new types of investments were potentially driven by outsized media attention on buzzy investing trends, as well as social media and influencers. Just over half of advisors said clients sometimes or frequently raised questions about stocks they saw on social media (52%). Sixty percent said clients have invested in cryptocurrency in the last year, while one-third invested in special purpose acquisition companies (SPACs) and a quarter invested in so-called ‘meme stocks.’ When faced with inquiries from clients about social media-driven investment ideas, most advisors advised clients that these investments were unsuitable for their portfolios and did not invest in them (73%).