Financial planners need to be able to back up their advice with statistics in order to overcome speculative aspects of their clients’ decision-making processes, Brad Burber University of California professor, told delegates at the FPA conference last week.
“Your clients suffer from emotions and psychology that are sometimes very difficult to deal with,” Burber said. “You need to support the advice you give with empirical data.” Research conducted by Burber found that individuals generally trade too frequently due to overconfidence and they tend to hold onto losing investments and sell winning ones. Men are generally more confident than women and therefore trade more often. “But this is not a story about women being better than men. This is a story about women being lousy investors and men being worse,” he said. Advisers therefore need to be able to show clients data that highlights the benefits of investing long-term. Burber also advised retail investors should opt for managed funds, rather than direct investing, and said that although that may not be ‘sexy’ it doesn’t mean it’s the wrong thing to do. His research also debunked advertising that suggests online traders have an advantage over other market participants due to speed – Burber found the opposite to be true. “Investors who go online performed well before they went online. They accelerate trading…and performed poorly after,” he said.
There is one investment area where Insignia’s $180 billion super arm has not lost money for the past 17 years, which is what it calls the insurance-related investments. The alternatives strategy is gaining popularity among asset owners due to its diversification benefit, but Insignia’s super and asset management investment chief Dan Farmer warns it is a space where investors can suffer if they “stumble in without doing the homework”.
Darcy SongJanuary 23, 2025
