If the latest data from Morningstar (US) is anything to go by, the ‘behaviour gap’ seems to be getting wider and wider.
The gap between the average investor return and the average fund return had ballooned to a mind-blowing 2.49 per cent by the end of 2013.
There is every indication that the picture for UK investors would be very similar. A 2010 working paper by the Cass Business School shows that the performance gap for an average UK investor is roughly 1.2 per cent per annum over the nine-year period ending 2009. And research in 2007 by Lukas Schneider showed that the performance gap was 2.43 per cent per annum for UK smaller companies and 2.06 per cent per annum for growth stocks.
A new white paper by Vanguard suggests that the discipline and guidance that an adviser might provide through behavioural coaching adds an estimated 1.5 per cent per annum net return and could be the largest potential value-add by advisers.
The problem is that many advisers appear to still be in the business of chasing a fund manager’s alpha, rather than focusing on their own alpha. This is dangerous and needs to change. The focus needs to be on helping clients to close the ‘behaviour gap’.
This is a far more compelling service proposition and a much easier sell for advisers than chasing fund manager alpha.
Abraham Okusanya is the principal at FinalytiQ
