These traits have an effect on the extent to which behavioural biases impact investors, so tailoring communications to ensure clients respond in a manner consistent with their long-term best interests is essential.
FTA: Studies have shown that savers have put more aside than ever before; but those who have never saved are more likely to be in debt. How do we balance this equation?
LW: Deferred versus immediate gratification is a big challenge; we have increasingly lived in a world where everything is faster, more immediate, more material and more superficial.
Even in lockdown, you can have goods delivered to you the next day and almost any kind of cuisine within the next hour; what does that subconsciously teach us about immediacy?
[Yet] during the pandemic it seems people have become more reflective and had the opportunity to contemplate their life choices and plans.
Many have also found that they have surplus income and thus saved more. The question is whether this accidental savings habit will stick, or whether the exuberance of post-lockdown spending will overcome the habit and [use up] the money saved.
During lockdown, savers will have felt a sense of security and even self-congratulation for past deferred gratification, while those in debt or with no savings will have wished they had saved or at least had more savings to fall back on.
There is, of course, structural bias against saving that favours taking on debt and spending. It is much harder to begin and increase savings, particularly long-term savings than it is to take on or increase debt.
It is significantly easier to gamble than it is to invest, especially as the financial promotions and sponsorship rules are hardest for long-term savings.
CJ: The low interest rate, low inflation environment has become a breeding ground for scams and ultra-high risk investments, a fact identified by the Treasury and the Financial Conduct Authority.
We can hope that they and the various government agencies act to balance this equation. Within the industry, advice is the key.
We can continue to become more client-focused and less performance focused.
We can also use cashflow planning more, increase collaboration between mortgage advisers and financial planners, and streamline our processes through technology to enable advice to become more accessible and affordable to more people.
FTAdviser: You've mentioned risk and a proclivity towards 'easy wins'. Is the GameStop saga evidence that people do not understand markets or risk, and are in danger of jumping on a populist investment bandwagon?
CJ: I was around for the Dotcom boom and I guess it is a bit like that. The important thing is to separate investing from trading.
