Behavioural finance solution to benefit SMSFs

05-Sep-2016

By Krystine Lumanta

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Behavioural Finance Australia (BFA) has partnered with specialist independent equities manager and broker Bellmont Securities to offer a behavioural finance-inspired investment solution designed specifically for accountants and advisers, and their SMSF clients.

The investment solution comprises a portfolio of directly held shares to be managed by Bellmont.

In the way it would be managed and structured, the solution would seek to overcome a number of investor biases that could lead to worse financial outcomes for clients in the long term, such as from incurring unnecessary taxes and costs, BFA said.

It also seeks to capture the benefit of other investors’ decision-making biases and will achieve these benefits by employing a low-cost, low-turnover rules-based investment approach, by allowing clients to access the benefits associated with direct share ownership, by creating portfolios tilted towards value stocks, and through behaviourally-aware client engagement strategies.

Under the new arrangement, BFA will help accountants and advisers to define the characteristics of the investment solution that best meet their client and business needs.

BFA noted different solutions would suit different business models, including those operating as stand-alone advice or accounting firms, as well as integrated accounting/advice businesses and SMSF administrators.

The consulting business will also assist accountants and advisers to implement the solution, including helping to educate and engage with both clients and staff.

According to BFA, the key differences of the investment solution were that it applied behavioural finance insights in both the investment management and client engagement, it targeted a relatively under-serviced part of the market by offering a non-traditional direct investment solution designed for more sophisticated, independently-minded SMSFs, and it could be delivered in a flexible way to suit different business models and client needs.

“Behavioural finance research demonstrates that investors, including both professional investors and sophisticated individual investors, are subject to a range of investment decision-making biases,” BFA director Simon Russell said.

“It formalises some of what many investors, accountants and advisers may have already experienced anecdotally.

“But rather than relying on anecdotes, behavioural finance research measures investment decision-making in controlled laboratory settings, or in large-scale real-world environments, and links the findings with relevant research from psychologists and neuroscientists about how the brain functions and how people make decisions.”

BFA is a specialist independent behavioural finance consultant.

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