Change the environment not the person – investment behaviour study finds

By Nedgroup Investments

When it comes to influencing investor behaviour, it’s more important to change the way in which the investor is receiving information than it is to try and change their behaviour.

This was suggested by Professor Paul Dolan who was a keynote speaker at the Nedgroup Investment Behavioural Summit held this week. According to Dolan, if you want to design effective behavioural interventions, it’s much easier to design environments that make it easy for people to behave in a certain way than it is to change people’s minds.

“This is because, most of the time, our attention is drawn to particular avenues by means of unconscious processing and not by a process that we have active control over,” he says.

This sentiment was reinforced by the findings of the Nedgroup Investments Financial Personality Survey which were revealed for the first time at the event.

The survey, which assessed over 3 000 South African investors and advisors, is one of the largest surveys of its kind ever conducted in Africa. Amy Jansen, Head of Behavioural Solutions at Nedgroup Investments led the survey in partnership with Oxford Risk, applied behavioural finance specialists.

“We believe that for people to have a successful investment journey they have to be comfortable enough on a personal level to firstly, invest in a certain portfolio and secondly, stay invested in it for the appropriate timeframe. If there is one thing this study showed us very quickly, it’s that there is no one approach that will achieve this. It’s time for the investment industry to do things differently,” she says.

One of the key findings in the South African study, which assessed individuals against 12 defined personality traits that have been known to affect investing behaviour – was that there are multiple dimensions to how investors experience investing. There are also six identifiable personality archetypes that people tend to cluster around.

Importantly, the six personality groups could be separated into two broader groups according to their level of composure – measured as someone’s tendency to be emotionally engaged with their investments and likely to be swayed by short-term changes. “This is significant because it means we can identify people who are more likely to be emotionally distracted by what is happening around them, and we can make sure that we provide the necessary support for them instead of simply suggesting an investment portfolio. These groups will need varying levels of emotional support to feel comfortable,” says Jansen.

On the other side of the continuum are the personality groups that have higher composure and are less affected by noise.

“Creating a comfortable environment for these types of investors means enabling them to make their own decisions. For example, investors who have the highest composure might only feel comfortable with a decision if they feel that they have done it all themselves. If we want to support their decision-making process, it needs to be done subtly, by improving the decision-making environment, rather than being prescriptive or reducing their freedom to choose. Anything that feels like intervention or assistance risks alienating them,” explains Jansen.

This has real, practical implications when it comes to the way that financial companies interact with their investors.
For example, Jansen says, advisers can focus on adapting the environment to the underlying personality of the investor. By anticipating how they might react to different phases of their journey, we can accommodate this in the design of the journey, rather than trying to change the type of person they are.