BeFi Barometer 2021

Advisors Witness Dramatic Increase in Behavioral Biases Among Clients Amidst Pandemic Uncertainty - Seite 2

“There has never been a more critical time for advisors to incorporate behavioral 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, and a practitioner of behavioral finance in asset management for over 20 years. “The combination of pandemic-driven uncertainty, market volatility, and speculative investing trends have culminated in an environment where behavioral biases thrive.”

In addition to reporting higher levels of biases among clients, significantly more advisors pointed to the effectiveness of using several behavioral finance techniques to mitigate behavioral biases. The findings suggest that behavioral finance techniques are resonating with advisors and investors more in the current market environment than in past market cycles.

Most effective behavioral bias mitigation techniques	2020	2021
Taking a long-term view	62%	76%
Integrating goals-based planning	47%	75%
Implementing systematic processes	52%	66%
Cautioning investors to stay calm	35%	52%
Increasing portfolio diversification	37%	48%

“Advisors can always use behavioral finance techniques to their advantage, but in times of market uncertainty, such skills can be a true differentiator,” said Asher Cheses, Associate Director of Wealth Management at Cerulli Associates. “Our findings this year—a year of unprecedented challenges, uncertainty, and volatility—support that those who leverage behavior bias mitigation techniques were able to secure client trust and retain assets.”

The top five benefits of incorporating behavioral finance techniques as reported by advisors in 2021 were:

• Strengthen trust and relationship with clients / increase client retention
• Keep clients invested during periods of volatility
• Reduce short-term or emotional decision-making
• Better manage client expectations
• Help improve clients’ financial decisions and prioritize goals

When it comes to how advisors are implementing behavioral concepts, 74% do it through client communications, predominantly to align their communications with clients’ emotional tendencies (68%). Fifty-six percent leverage behavioral concepts within the portfolio construction process to match risk tolerances (78%) as well as age (73%) and wealth (62%) factors.