FINER RESEARCH FOR EFPA ITALIA
Il Sole 24 Ore PLUS | October 2024
Behavioral finance is for Nobel Prize winners, but not for Italian financial advisors and their clients. The research carried out by Finer for the Efpa Italia annual meeting, held in recent days in Florence, with the theme «WYSIATI. Finance between reality and prophecy”, shows that only 17% of customers and 66% of professionals say they know what it is about.
The EFPA, a professional body responsible for defining standards and certifying Financial Advisors and Financial Planners, brings together savings professionals, operators and investment services experts in the meeting.
The acronym that gives the Meeting its title refers to the expression “What You See Is All There Is”, which translates as «everything you see is the whole of reality». Expression used by the recently deceased Nobel Prize winner Daniel Kahneman, which indicates a mental shortcut that leads us to believe we have a complete frame of reference on the issues we decide on. And therefore, at the center of the meeting are the opportunities of behavioral finance in the knowledge base of a savings professional.
Nicola Ardente, vice president and director of Efpa Italia, explains the choice of theme as follows: «We are an authoritative body for certifying the skills of financial advisors. We have reached 11,500 certifications and this is an important milestone. Behavioral finance is one of the fundamental topics in the consultant’s knowledge. In Florence we wanted to propose some reflections to think broadly about the impacts of behavioral finance both on the client and on the consultants themselves as operators, to analyze the cognitive limits that often lead to having a limited vision”.
Ruggero Bertelli, from the University of Siena, reiterates: «Looking down, looking only at what you see now, is a mistake. Consultants need to be architects of savers’ choices, explaining that we need to talk about investments rather than savings, that it makes no sense to talk about investments if you don’t have a long horizon, otherwise it’s simple liquidity.”
And Giorgio De Rita of Censis, recalling the title of the event, recalls that prophecy is not a form of fantasy, but looking inside to understand what one can be.
But how is the situation? «The impressive thing that struck us the most – explains Nicola Ronchetti, CEO of Finer – is that although behavioral finance has been talked about for years, few know it and few, both among financial advisors where we have just over 60% who know what it is and even less than 20% among investors. But the most impressive thing is that those few, those who know it among private banks and financial advisors, use it mainly to communicate with customers and not to develop, for example, a portfolio or make an asset allocation.”
Knowledge of behavioral finance, as far as investors are concerned, is more widespread in the following categories of subjects: men, boomers, residents in the North, educated, multi-banked, network customers, with high wealth. For professionals, however, those who have certifications, women, young people, those living in the North, those who are more educated and those with an above-average portfolio are more “ahead”.
Furthermore, according to Finer’s study, the most widespread cognitive errors (loss aversion, herd effect, inertia, anchoring, overconfidence, attribution errors) highlight significant differences by gender, age and wealth. For example, loss aversion is the element that records the highest number of findings for almost all ages, except in generation Z (1997-2012) where the herd effect exceeds loss aversion and in millennials (1980 -1996) where the two values are very close. Overconfidence is not at the top of the list (but this could also be an effect of excess confidence, editorial note).
Moving on to the distribution of these biases by size of assets, it appears that the mass market sector is more “deviated” by the herd effect than by aversion to losses, a situation that is reversed in the case of affluent and “private-Hnwi”, who they actually have more to lose. These differences, according to Finer, offer the opportunity to segment current and potential investors in a practical and concrete way.
And Ronchetti adds: «And this also has enormous potential in the ability to convert the enormous liquid assets that Italians still have and which they do not invest for fear of approaching assets outside the traditional ones, namely real estate and public debt securities. ».
Antonio Criscione