Financial advice can help reduce investor anxiety during periods of market turbulence, according to new research.
This study into long-term investor behaviour was conducted by Dynamic Planner in conjunction with the Henley Business School, with the aim of helping investors achieve better outcomes in the face of financial adversity.
Survey participants were shown hypothetical scenarios where they experienced a market crash and a decline in their pension values. Of those questioned, 58 per cent of respondents who had experience of financial advice were concerned, while 25 per cent were still optimistic about their financial situation.
In contrast of those without experience of financial advice, 74 per cent were concerned and only 12 per cent were optimistic. This level of concern remained robust amidst the impact of Covid-19.
When it comes to financial risk, individuals who had worked with a financial planner were more comfortable with it. In total 13 per cent placed themselves in a medium-high risk level and 21 per cent in a low-medium risk level.
Again this differed from the group with no experience of financial advice. Here only 7 per cent were in a medium-high risk level and 43 per cent in a low-medium risk level.
The differences in risk tolerance levels were apparentdespite the impact of Covid-19 on market volatility. However, the study also found that respondents who took part in the survey after the real-life Covid market crash, had lower levels of confidence in their abilities to manage their finances and higher levels of negative emotions.
Dynamic Planner’s head of psychology & behavioural insights Louis Williams says: “The findings so far show that, generally, those who had worked alongside a financial planner were more resilient, had higher levels of positive emotions and self-esteem, were more confident in their abilities to manage their finances, more conscientious and emotionally stable, and were better able to regulate their emotions.
“It might be the case that such individuals with these attributes may be more likely to seek financial advice. But the evidence does demonstrate that there are important individual differences.
“In fact, when controlling for factors that may lead to seeking financial advice, such as age and wealth, we continue to observe the emotional wellbeing benefits of having experience with a financial planner.”
Williams says that these qualities of stability and resilience can help investors face face periods of financial uncertainty or adversity with confidence.
Dynamic Planner launched its government-sponsored behavioural science and investment study with Henley Business School in September 2019.
Its key aim is to understand how investors behave when their investments fall in value, and how communications and investor education can be improved to prevent detrimental actions.