Investment management firms want to get – and keep – clients invested. Billions have been spent persuading people to invest, and to invest in a particular place. But behavioural barriers to both remain obstinately high.
Even when a firm manages to attract new assets, one market storm can be enough to blow those assets away, possibly indefinitely.
Countless investible cash deposits sit strapped to the supposed safety of the sidelines, not because markets are riskier right now, but because to those whose attention only lights up when markets are on fire, possibly still scarred by previous burns, feel as if they are.
Part of the problem with keeping clients invested is that it is very easy to be invested without feeling comfortable as an investor.
If a client has signed up more out of desperation for a perceived problem to be taken away than out of a desire to understand the benefits of the ongoing process of investing, they are far more likely to suffer investment-related anxiety (and make costly mistakes) later on.
Better investor engagement = better investing experience
Investor engagement is key to investor experience. And better investment experiences come from being invested in the investment process, not merely a portfolio.
The firms that best attract and hold investor attention will be those that best attract and hold assets under management.
New developments in behavioural technology can help encourage deployment of unused cash, help map clients to products most likely to resonate with their personality, and enhance regular engagement throughout the journey.
It can help combine the one-time act of investing with the ongoing engagement in the process of becoming a better, more consistently emotionally comfortable investor. And it can do so at scale.
Personalisation at scale
There’s a big difference between hearing a name across a crowded room and hearing your name across a crowded room. To get people engaged, you need to get personal. But doing personalisation at scale is hard, or at least has been.
The investing world is, thankfully, moving on from assuming that sending an investor a factsheet means you have equipped them to make a good decision (and regulators, both UK and European have made this explicit, such as in the Financial Conduct Authority's consumer duty rules).
Better investment experiences come from being invested in the investment process, not merely a portfolio.However, most sophisticated interventions, even those that recognise the role of emotions in investor decision-making, have been stuck in the shallows. To operate at scale, they have had to focus on the abstracted architecture of decisions: 'Which way to present this choice is likely to prove most favourable, on average?'
On average, interventions that recognise the role of emotions in financial decision-making can be helpful. But they don’t cater for the fact that those emotional responses – and the consequences they inspire – can vary dramatically, even within the same individual depending on their immediate circumstances.
For example, reporting on details of a portfolio can provide emotional comfort for one, create discomforting overwhelm for another, and inspire an unhelpfully narrow focus for a third.
Interventions are most effective when they use the right words, at the right time, and in the right tone.
Knowing which buttons to press to provide emotional comfort for a given client is something good advisers do intuitively. But to do it intuitively can take years for each relationship. And not all investors have a relationship with a human adviser. Some self-direct on entirely digital platforms.
However, it’s now possible to radically amplify the emotionally comforting power of personalised investor interventions.
Behavioural engagement technology
In investing, personalisation stems from a deep understanding of each individual’s financial personality on multiple dimensions.
To pick a few among many: to what extent is an investor prone to emotional responses to the present state of their investment journey (and external stimuli such as the news)? How capable and comfortable do they feel about their ability to make good financial decisions?
What’s their propensity to act quickly and on emotional instinct when making investment and spending decisions? What (if any) aspects of sustainable investing drive their decisions?
And importantly, how do these interact with each other in certain situations, say when markets are falling or upon retirement?
Grounded in analysis of thousands of investor financial personality assessments across four continents, we have identified stable clusters of behavioural tendencies that act as personality ‘signatures’ – giving strong, scientific indications of which messages, and which way to deliver them, are likely to work best for each investor in each situation.
Both the content of these interventions and the confidence with which they can be prescribed can be amplified by combining them with existing data on client online behaviour patterns, transactions patterns, and holdings to get an more refined sense of what works best for whom, when, and in what way.
Greg B Davies is head of behavioural finance at Oxford Risk
