Investors are more likely to rely on the financial media, than financial advisers when it comes to managing their money, according to new research.
The research, from behavioural finance experts Oxford Risk, shows a third (32 per cent) of investors use the financial media as a source of information when reviewing investments. This compares to only one in five (20 per cent) that use financial advisers.
Other sources cited include the general media (23 per cent), family (13 per cent), friends (11 per cent), Facebook and colleagues (both 7 per cent), investor chat rooms (6 per cent), Twitter (6 per cent) and LinkedIn (5 per cent).
In terms of which sources of information investors have seen the biggest increase in their use of, 14 per cent said financial media, followed by 10 per cent who said it was their financial advisers, and then 5 per cent who said Facebook.
Oxford Risk head one direction behavioural finance Greg Davies says: “The correlation between the investments in the news, typically those which have experienced extreme moves, and investors’ own assets may be very low.
Retail investors should look at market news in moderation, otherwise they run a serious risk of becoming too anxious.”
Oxford Risk say many of the investment decisions retail investors make are for emotional comfort, and it estimates that in an average year this typically costs them 3 per cent in returns.
Davies adds: “Unfortunately, though, many of the suitability processes used by many wealth management businesses are unfit for purpose. They are often based on crude assessments of investors’ risk profiles at the beginning of client relationships and fail to adapt to changing client circumstances, especially during crises.”
He says wealth managers need “less guesswork” and more “modern science-based technology” to gain comprehensive assessments of their clients’ personalities and behavioural tendencies.
Oxford Risk does build software that addresses some of these issues. However it says many wealth and financial advisers are poorly equipped to help clients deal with the emotional and psychological roller-coaster ride their clients have endured during the Covid-19 crisis, and the impact it has had on markets and their investments.
