Oxford Risk warns of perils of ’emotional’ investing in addressing Swiss portfolio managers

For those clients of Swiss wealth managers who have increased their allocation to cash during the crisis, Oxford Risk estimates the cost of this ‘reluctance’ to invest is around 4% to 5% a year over the long-term

Behavioural finance company Oxford Risk is urging Swiss wealth managers to review their often inadequate processes for helping clients make the best financial decisions in the face of complexity, uncertainty, and behavioural biases – challenges that have been dramatically heightened during the Coronavirus crisis.

They believe many wealth managers and financial advisers in Switzerland and around the world are poorly equipped to help clients deal with their emotions when it comes to investing.

Oxford Risk says retail investors make investment decisions based on their emotional comfort, and on an average year it estimates this typically costs them 3% in returns. However, given the circumstances surrounding the COVID-19 crisis and the increased levels of market volatility, it estimates the cost of this will be more.

For those clients of Swiss wealth managers who have increased their allocation to cash during the crisis, Oxford Risk estimates the cost of this ‘reluctance’ to invest is around 4% to 5% a year over the long-term. In addition, it estimates that the cost of the ‘Behaviour Gap’ – losses due to timing decisions caused by investing more money when times are good for stock markets and less when they are not – i.e. buy high and sell low – is on average around 1.5% to 2% a year over time.

Greg B Davies, PhD, Head of Behavioural Finance Oxford Risk said: “The suitability processes of many wealth management businesses are typically too human heavy, inefficient, and front loaded to the beginning of the client relationship to keep up with rapidly changing client circumstances at scale during a crisis. Understanding of client financial personality is typically limited to risk profiling – often badly – and subjective human assessment. Very few wealth management propositions are using the sort of objective, science-based measures that are needed to provide a comprehensive picture of their clients. There is too much guesswork and not enough technology.”

Oxford Risk does not advocate removing humans from the process, but it says advisers need to be assisted by better diagnostic tools enabling more accurate assessment of a client’s personality and likely behavioural tendencies.

Marcus Quierin, PhD, CEO, Oxford Risk said: “Switzerland has one of the biggest and most respected wealth management sectors in the world and because of its strong reputation for political and economic stability, it is well positioned to grow and attract more international money.
“We are delighted to win the Best Risk Profiling Solution Award, but we would like to use this as a platform to urge Swiss wealth managers and others around the world to review how they assess the investment needs of their clients and ensure this is reliable and flexible enough to adapt to their changing circumstances.”

Oxford Risk builds software to help wealth managers and other financial services companies assist their clients in making the best financial decisions in the face of complexity, uncertainty, and behavioural biases.

Read this next

Digital Assets

SEC seeks $5.3 billion fine for Terraform and co-founder Do Kwon

Federal regulators are pursuing a fine of $5.3 billion against Terraform Labs and its co-founder Do Kwon for defrauding investors, following a recent verdict that found them liable for a multi-billion-dollar fraud.

Digital Assets

El Salvador’s Bitcoin wallet hacked by CiberInteligenciaSV

El Salvador’s official Bitcoin wallet, Chivo, has faced another security setback as the hacker group CiberInteligenciaSV released parts of the wallet’s source code on the black hat hacking forum BreachForums.

blockdag

BlockDAG’s $19.8M Presale & Moon Keynote Teaser Place It Above KANG, SOL, & ARB as the Top Crypto Investment in 2024

Uncover the success behind BlockDAG’s $19.8M presale and learn what’s making it a more compelling investment than KangaMoon, Solana, and Arbitrum.

Fintech

Revolut to share user interactions data with ad agencies

Fintech giant Revolut is exploring new revenue streams by planning to share customer data with advertising partners.

Chainwire

Zircuit Staking Soars Past $2B TVL In Only 2 Months

Zircuit, a ZK rollup with parallelized circuits and AI-enabled security, today announced that its staking program has soared past $2B in TVL in only 2 months. 

Retail FX

PrimeXBT joins Financial Commission’s membership roster

The Financial Commission, an independent external dispute resolution (EDR) body, today announced the addition of cryptocurrency trading firm PrimeXBT as its latest member effective March 6, 2024.

Digital Assets

Ripple wants to reduce SEC’s $2 billion penalty to $10 million

Ripple Labs has responded to the U.S. Securities and Exchange Commission’s (SEC) recent demand for $2 billion in penalties, arguing that the amount should be substantially reduced to $10 million. The legal stance was disclosed in a court document filed late Monday.

blockdag

Analysts Go Bullish On BlockDAG After Its Surge to $0.005 And Unique Developer Platform That Goes Beyond Ethereum & BONK

Discover how BlockDAG’s unique low-code and no-code platforms offer more adaptability than Ethereum’s bull run and BONK’s fluctuating prices.

Tech and Fundamental, Technical Analysis

WTI crude oil Technical Analysis Report 23 April, 2024

WTI crude oil can be expected to rise further toward the next major resistance level 86.00, which has been reversing the price from October.

<