What matters most to investors?
Growth, security and income all come high on the list, of course.
But what about the emotional side of investing?
Isn’t a critical part of an adviser’s role to try and reassure clients when markets spike – to convince them that a longer term strategy is correct and that the tortoise will beat the hare.
The extent to which how we feel can influence what we do was the focus of a recent article in the The Economist. Researchers at the University of Waterloo in Canada have apparently uncovered a connection between furniture and how we think and feel!
Participants were allocated to tables and chairs that were either slightly wobbly or solid as a rock and asked their views on the stability of the relationships of various celebrity couples. Those participants with the wobbly furniture rated the couples more likely to have wobbly relationships than those on the sturdier items.
The wobblers in the study also rated stability in their relationships as more important than those who were on a sounder (furniture-wise) footing – implying that environmental instability drives a desire for solidity elsewhere.
What can we learn from the shaky stools of Ontario?
Maybe advisers need to check their furnishings and determine if a wobbly desk maybe leading to clients insisting on cash and German bunds as their main holdings.
Alternatively, if your clients are all desperate for Congan Oil futures and Azerbaijani 30 year gilts, then maybe half an inch off a table leg in your office will help rebalance things.
More seriously, this type of research helps highlight how irrational we can be and therefore the importance of getting help from financial advisers who can take an objective perspective of our circumstances.
It also throws up more evidence – if it was needed in light of LIE-BOR rate fixing and the like – of the importance of honesty and trust in financial services. If we are as suggestible as this study indicates then talented, but unscrupulous, interlopers have every chance to take advantage of consumers. Developing longer term relationships, together with the transparent use of data, can demonstrate that you’re on the side of your client and also that your support is worth paying for.
But perhaps most interesting of all is our reaction to the study itself.
The work of authors such as Dan Ariely (‘Predictably Irrational’), Malcolm Gladwell (‘The Tipping Point ‘) et al has revealed our love of science with stories to support them. We love to read about scientific studies that help explain our everyday behaviours, preferably with intriguing anecdotes that we can rattle off to our friends and family ad nauseum.
The Canadian study involved 47 participants. Now, although the results are apparently statistically significant, it’s difficult not to wonder:
- Whether the results the researchers got were the ones they were after all along – wobbly chair equals worries about stability in life is a memorable punch line
- If 47 participants – including a control group – might just be a smidge too few to be really certain about the results
So is it the insight that’s interesting or just the fact that the research has been designed in a way that appeals to our playfulness?
I suppose my real point is to be sceptical of experts. Their own emotional biases may well be influencing what – and how – they tell us.
Advisers are experts and I think we should be sceptical – not cynical – of what they tell us, simply because they’re human. This doesn’t invalidate their advice – experts are needed for good reason – it simply means challenging and making the advice process (financial, medical, legal etc) iterative and two way throughout.
Too often advice from experts becomes one way as soon as the fact find is complete. Experts are as imperfect as everyone else, so finding ways to remove their biases can only help improve the final outcomes for them and their clients.
For anyone interested, the title of this blog refers to a 1986 song by new wave band… Furniture.