Financial advisers should pay increased attention to their clients’ emotional biases through the lens of behavioural finance to acquire, retain, and grow financial assets.

This is all the more important as the financial assets of investors in the United States alone reached US$55 trillion at the end of 2020, up from US$46 trillion the year before, while the pandemic continued to worsen their unease, Cerulli Associates says in a new report.

According to the research, availability ( 91% ), confirmation ( 80% ), and recency ( 71% ) are the most frequently cited biases from investors, which all focus on information gathering.

 “The fact that investors realize they rely on things that they just read, that were easy to find, and reinforce what they already think underscores the challenge with investor ‘research’,” says Scott Smith, director of retail investor advice relationships. “Instead of seeking out a variety of inputs from independent experts, consumers are predisposed to choose the path of least resistance.”

The research also highlights the evolution of investors’ behavioural biases with age, finding that younger investors are more likely to exhibit the tendencies that affect them. Overall, investors aged 40-49 report the highest incidence of acute behavioural bias – confirmation bias ( 47% ) and overconfidence ( 42% ).

As advisers seek to establish relationships with an emerging affluent investor, acknowledging this underlying bias is important. “Advisers must start early to help investors understand their biases and nudge them toward better outcomes,” Smith suggests.

Across the wealth spectrum, investors at the highest wealth levels – those with more than US$5 million in investable assets – report elevated levels of confirmation ( 39% ) and availability ( 39% ) bias.

“These investors have frequently made long-term decisions about the direction of their portfolios and are reluctant to be swayed by new information. While they should not overreact to short-term changes, they should also be open to the reality that the landscape of finance is one of constant evolution and refinement, necessitating ongoing portfolio oversight,” he adds.

As investors’ advice requirements change with age, wealth accumulation, and life experience, advice providers should consistently offer guidance to serve those who eventually recognize that accepting advice is wise.

“Increased attention to clients’ emotional biases through the lens of behavioural finance can be an impactful tool in helping set goals, maintain investment discipline, and reduce decision fatigue,” says Smith. “Advisers need to ensure that investment decisions are being optimized for the financial betterment of the investor. Understanding their underlying biases and mitigating sub-optimal investment decisions are critical for advisers in a digitally pervasive environment.”