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%).
“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.
“There are many ways advisors can leverage behavioral finance
techniques to address specific client characteristics and profiles,
and the value of taking these steps is clear,” said Devin Ekberg,
CIMA®, CPWA®, CFA®, Chief Learning Officer and Managing Director of
Professional Development, Investments & Wealth Institute.
“Advisors who use behavioral finance are building stronger
relationships and retaining more clients. Perhaps most importantly,
they are helping their clients stay the course through challenging
times, which has huge impacts when it comes to investment
performance and meeting long-term goals.”
About the Study
Schwab Asset Management, in collaboration with the Investments
& Wealth Institute (IWI), retained Cerulli Associates, a
leading independent market research and consulting firm, to learn
how advisors view and use behavioral finance when working with
clients. This third edition of the survey, the BeFi Barometer 2021,
was conducted by Cerulli Associates in Q2 2021 and reflects the
views of over 300 advisor members of the IWI. Respondents are
diversified among business models, including registered investment
advisors (RIAs), wirehouse advisors and national/regional broker
dealers. All data is self-reported by survey participants and is
not verified or validated. Margin of error is 3%.
About Cerulli Associates
For nearly 30 years, Cerulli has provided global asset and
wealth management firms with unmatched, actionable insights.
Headquartered in Boston with fully staffed offices in London and
Singapore, Cerulli Associates is a global research and consulting
firm that provides financial institutions with guidance in
strategic positioning and new business development. Our analysts
blend industry knowledge, original research, and data analysis to
bring perspective to current market conditions and forecasts for
future developments.
About Schwab Asset Management
Schwab Asset Management offers a focused lineup of competitively
priced ETFs, mutual funds and separately managed account strategies
designed to serve the central needs of most investors. As part of
the Charles Schwab organization, we champion the needs of investors
and seek to enhance the financial lives of our clients in all we
do. Operating our business through clients’ eyes and putting them
at the center of our decisions, we aim to deliver exceptional
experiences to investors and the financial professionals who serve
them. Established in 1989, the firm manages more than $635 billion
in assets and draws on the knowledge and expertise of more than 119
investment professionals (figures as of 6/30/2021). More
information is available at www.schwabassetmanagement.com.
About Charles Schwab
At Charles Schwab we believe in the power of investing to help
individuals create a better tomorrow. We have a history of
challenging the status quo in our industry, innovating in ways that
benefit investors and the advisors and employers who serve them,
and championing our clients’ goals with passion and integrity.
More information is available at www.aboutschwab.com. Follow us
on Twitter, Facebook, YouTube and LinkedIn.
About Investments & Wealth Institute
Founded in 1985, the Investments & Wealth Institute is the
premier professional association, education provider, and standards
body for financial advisors. Through its award-winning events,
publications, courses, and acclaimed certifications—Certified
Investment Management Analyst® (CIMA®), Certified Private Wealth
Advisor® (CPWA®), and Retirement Management Advisor® (RMA®)—the
Institute delivers Ivy league-quality, highly-practical education
to more than 30,000 practitioners annually in over 40 countries.
Members of the Institute include the industry's most successful
investment consultants, advanced financial planners, and private
wealth managers who embrace excellence and ethics in applying a
broad set of knowledge and skills in their daily work with clients.
More information is available at investmentsandwealth.org.
Disclosures:
Schwab Asset Management is not affiliated with Cerulli
Associates or the Investments & Wealth Institute.
Schwab Asset Management is the dba name for Charles Schwab
Investment Management, Inc. (CSIM). Schwab Asset Management is a
part of the broader Schwab Asset Management Solutions organization
(SAMS), a collection of business units of The Charles Schwab
Corporation aligned by a common function—asset management-related
services—under common leadership. CSIM and Charles Schwab &
Co., Inc. (Schwab) Member SIPC are separate but affiliated
companies and subsidiaries of The Charles Schwab Corporation.
(1021-1RH0)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20211004005044/en/
Karleen Fallon Cerulli Associates 617-841-1005
kfallon@cerulli.com
Christine Hudacko Charles Schwab 415-961-3790
christine.hudacko@schwab.com
Cindy Chaifetz Investments & Wealth Institute 303-850-3079
CChaifetz@i-w.org
Charles Schwab (NYSE:SCHW)
Historical Stock Chart
From Apr 2024 to May 2024
Charles Schwab (NYSE:SCHW)
Historical Stock Chart
From May 2023 to May 2024