Greg

The FCA’s targeted support framework is a much-needed and well-intentioned way of closing the advice gap. But unless it accounts for behavioural differences between investors, it risks offering solutions that are only superficially suitable.

Every advisory firm knows the importance of treating their customers fairly. They also know that treating ‘vulnerable customers’ fairly requires special care. What’s not so clear is what this means in practice.

Lifestyle funds were created with investor behaviours firmly in view. However, in light of (almost decade-old) changes to pensions legislation and advances in our understanding of what really helps investors, the particular view of investor behaviour they reflect now looks very dated.

Advisers and wealth managers often ask about the consistency of Oxford Risk's risk ratings over time. We have produced a report to demonstrate the stability of our risk mapping solution over time.

A robust Risk Capacity calculator is the most important missing piece of most advisory firms’ suitability tech stacks. Nowhere is this gap more important than in retirement income advice.

Clearing up one of the most common and consequential confusions in financial advice.

Discover how Behavioural Engagement Technology can support client communications during times of market volatility.

Several of the issues raised in the FCA’s Thematic Review of Retirement Income Advice are inherently behavioural and therefore can be tackled only with behavioural solutions.

Some thoughts on how to make the most of AI opportunities within wealth management… and how to avoid some tempting, but potentially costly mistakes.

We have estimated the cost over time of poor, emotionally driven investor decisions to be about 3% per year for the average investor. This comprises both failing to invest at all, and, when that hurdle has been overcome, investing badly.

Revisiting the problem of advisor inconsistency of investment advice in light of the FCA’s Thematic Review into Retirement Income.

Revisiting the use of complex stochastic cashflow modelling in light of the FCA’s Thematic Review into Retirement Income.

Since the publication of the FCA’s Thematic Review into Retirement Income, one topic has dominated our conversations with clients: do we need a dedicated Risk Tolerance assessment that focuses on decumulation?

Before asking ‘How do I meet the regulations?’, ask ‘Why do they even exist?’ Were you to track regulatory changes over time, you would see a clear direction of travel.

Advisers and wealth managers have a great opportunity to build deeper human relationships with clients in ways many haven’t yet embraced.

Not all increases in efficiency are created equal. The best are purposefully built around enhancing the investor experience, enriching adviser-client relationships, and automatically evidencing the process by which these are done.

There are many potential benefits to converting some investible assets into a guaranteed income for life, but how do you assess suitability for the combination of a guaranteed income and an investment portfolio?

ESMA recently issued additional MiFID II guidance, highlighting yet again the need for improvement in how the legislation has been applied to investor suitability assessments.

In giving financial advice, there’s a lot you must communicate to your clients. Doing this in a compliant way used to be relatively straightforward: write what the legislation told you to, send it, and put a copy in the right file. Under the FCA Consumer Duty, things are a bit different.

There’s something different about the FCA Consumer Duty – a quality we haven’t seen in previous directives from the Financial Conduct Authority. As systematic as the guidelines may be, there’s one theme running throughout and that is a thematic insistence on empathy.

Talking about emotions or personalities probably isn’t something your clients expect to do when they visit you for wealth advice. Yet investing is emotional – it’s about hope, and fear, just as much as it is about cold hard figures and in-depth planning.

The more behavioural finance is applied to financial advice, the more it’s misapplied by firms prioritising shortcuts over science and surface sheen over depth of understanding.

Adopting a behaviourally conscious approach to client understanding, enabling personalised advice at scale, is the best way to upgrade customer satisfaction with their wealth-management experience.

The partnership between a wealth management firm and its tech is crucial. The right software can support smooth-functioning and compliant advice, providing a robust framework within which the adviser’s art can flourish.

Firms who harness evolving technology most effectively unlock the ability to serve more investors, more consistently, and more personally.

Centralised investment and retirement propositions can enhance client outcomes through streamlining advisory services. However, they also come with inherent dangers of prioritising a consistent product over a consistent approach for dealing with individual differences.

The Times & The Sunday Times Senior Money Reporter, Imogen Tew undertakes a full journalistic review of Oxford Risk’s Financial Personality Assessment. Find out more now.

Measuring investor ESG preferences has gone from a nice-to-have to a must-have. Without behavioural forethought, how to do it risks prioritising the false economy of easy pigeonholing over a genuinely valuable understanding of an investor’s preferences.

The first FCA Consumer Duty (PS22/9) deadline date is looming: firms will need to have agreed and be able to demonstrate their implementation plans by the end of October 2022.

Hear from Oxford Risk's Chief Client Officer, James Pereira-Stubbs and FinTech Global Director, Richard Sachar as firms are announced for the Global ESG FinTech100 list 2022.

What does the FCA Consumer Duty (PS22/9) say and what does it mean for your financial advice firm? In this blog, we review how firms must account for human behaviours and what they must do to meet the FCA Consumer Duty regulation by 31st July 2023.

Investment management specialists, 7IM have partnered with behavioural finance pioneers, Oxford Risk to support growing demand amongst advisers and wealth managers for risk-mapped funds and portfolios.

As European MiFID II regulation comes into force and other global regulators start to follow suit, we review what wealth managers can do to meet regulatory compliance whilst best positioning themselves for client demand in ESG investments.

Head of Behavioural Finance at Oxford Risk, Greg Davies PhD speaks with WealthBrieifing Group Editor, Tom Borroughes.

Watch now: Oxford Risk's Head of Behavioural Finance, Greg Davies PhD, keynote at the European Fintech ESG Summit.

Responding to the forthcoming MiFID regulations for sustainable investing and ESG.

Oxford Risk wins prestigous ESG award at Wealth Briefing Awards 2022.

Building investment solutions for multi-dimensional people, not blunt categories

Tech can be a microscope for matching ESG preferences to products, but too often it’s a blindfold.

This is the sixth and final post in a series giving our response to the FCA’s Call for Input on how to apply behavioural finance to help people make engaged investment choices more comfortably and confidently, and what role regulations can play in helping that to happen.

This is the fifth post in a series giving our response to the FCA’s Call for Input on how to apply behavioural finance to help people make engaged investment choices more comfortably and confidently, and what role regulations can play in helping that to happen.

Oxford Risk has launched a landmark study of human noise and inconsistencies in the advice process.

This is the fourth post in a series giving our response to the FCA’s Call for Input on how to apply behavioural finance to help people make engaged investment choices more comfortably and confidently, and what role regulations can play in helping that to happen.

This is the third post in a series giving our response to the FCA’s Call for Input on how to apply behavioural finance to help people make engaged investment choices more comfortably and confidently, and what role regulations can play in helping that to happen.

This is part two of our response to the FCA’s Call for Input on how to apply behavioural finance to help people make engaged investment choices more comfortably and confidently, and what role regulations can play in helping that to happen.

This is the introduction to a series of posts on our response to the FCA’s Call for Input on how to apply behavioural finance to help people make engaged investment choices more comfortably and confidently, and what role regulations can play in helping that to happen.

Do not tell people how to behave. Predict how they're going to behave and plan appropriate preventative action. Use a solution that is psychological, preventative, personal, perpetual, and planned for.

People buy stories, not investments. Without a supporting framework of fairytale-esque familiarity, diversification leads to discomfort. If diversification causes distress, it ceases to be such an obviously smart idea.

Accounting for an investor's time horizon needs a rethink now that investments are no longer closely tied to singular investment objectives.

Form must follow function. Capturing clicks is no use without first capturing valuable, usable, client insights.

Personal finance is behavioural finance.Blending behavioural psychology with quantitative-finance theory employs the best of both human and algorithmic worlds.

Most attempts to measure risk tolerance fail in at least one crucial way, be it confusing the measurement, confusing the audience, or thinking guesswork is a good enough replacement for rigorous psychometric science.

Investment plans that ignore, or pay only the whisper of lip service, to investor behaviours, are ultimately futile. Ultimately, the true job of a financial adviser is not to give clients a theoretically 'optimal' solution, but to give them the best solution they could realise in practice.

Increased complexity is a cost that the new benefits need to justify. What are the costs and benefits of your cost-benefit analysis? Too often, cashflow modelling introduces additional costs for little to no additional benefit.

If you start with high risk capacity, then after a fall in the markets your capacity gets even higher. If you start with low capacity, then lower market values means an even lower capacity.

Risk is not about the journey; it's about where you could end up. It is the risk of money not being there when it's needed, reflecting both the chance and the severity of poor returns.

A focus on the boxes to be ticked rather than the reasons the boxes exist can lead to laws being followed at the expense of meeting the very outputs the laws are there to produce.

If the risk that you're willing and able to take is not enough to get you to your goals, then any use of 'risk required' implies taking more risk than you're either able or willing to do.

Linking investor and investment risk requires putting the two into the same language; common approaches to doing this are not fit for purpose.There cannot be a perfect empirical way of mapping investor risk to investment risk.

The biggest barrier to social impact investing is low awareness of its opportunities to align investment goals with social goals. Some investors prefer to consciously trade-off social good and financial outcomes, thereby 'buying' the maximum social good with their wealth.

Financial returns aren't the only thing investors value. Financial returns aren't just a means, they can be an end. Investors need to feel comfortable with their portfolio if they are to succeed.

There is some concern within the industry about the upcoming MiFID II regulatory framework, expected to come into force on January 3rd 2018, specifically regarding suitability and appropriateness.

Chasing past performance represents the sacrifice of future performance in exchange for current comfort. The reason investors make decisions that harm their long-term investment returns is rarely a lack of knowledge.

Valid and reliable measures of risk tolerance and the short-term behaviours investors exhibit in seeking emotional comfort with the investment journey both have crucial roles to play in a risk-profiling process.

Never gamify at the expense of accuracy. Gimmicky games trivialise risk tolerance, they do not test it.Helping clients navigate complexity is better than pretending it can be cost-effectively avoided.

Behavioural Economics is a rapidly expanding field and everyday new research is being developed in academia, tested and implemented by practitioners in financial organisation, development agencies, government 'nudge' units and more.

These are the core principles that define Oxford Risk's approach to suitability. These principles are united by applying academic insights to improve investor outcomes. They are about behavioural finance in real life.

The lowered valuations of assets is not important, only the value when you need to withdraw years in the future. You're much better to sit tight and wait, rather than to exit when markets are down.

Risk appetite questionnaires need not be (indeed, should not be) elaborate. Over-engineered and superficially sophisticated 'revealed preference' approaches result in exactly the same problem for investors as Kids do for investments:

Profiling outputs should not be set to match the 7-point scale used in KIIDs. There is little point to profiling investors with more granularity than you can provide solutions for;

Classical finance asks us to believe the investment journey does not matter. That is a mistake. Ignoring strong intuitions of the investors who have to endure the journey is always a mistake. When we lack comfort with our portfolio, we will act in costly ways to acquire it.

Oxford Risk collaborated with Standard Chartered on a report into interest in sustainable investing: what's the current state of play, and how can it be improved?