By Thomas Tscherrig

Behavioural Finance in the Investment Report

9. May 2017
Client Reporting
White Paper

This white paper presents approaches on how aspects of behavioural finance can be integrated into investment reporting. It shows how client behaviour and preferences can directly influence the investment process and highlights the importance of biases. The white paper explains how these approaches can be integrated into investment reporting and provides insight into how to improve the core statements of investment reporting.

This white paper is about redesigning investment reporting and incorporating the insights of behavioural finance into the investment process. This is possible when the client’s behaviour and wishes directly influence the investment process. However, the approaches presented here are not applicable to pure asset management mandates.

To this end, the most important concepts of behavioural finance are first introduced and shown what can be done with them in the investment process. Whenever humans deviate from the behaviour in the simplified classical model, we speak of “biases”. It will be seen that there is both human behaviour to which one must pay more attention as a financial advisor and behaviour to which the client should be made aware. The biases are differentiated accordingly.

Then it is shown how the concepts can be incorporated into the investment report. It is assumed that a report makes statements about two things: the financial situation and the investment behaviour. The two behavioural categories can be assigned to the two items.

It then explains how behavioural finance can improve or complement the core statements of a report. This paper focuses on statements about the financial situation. Statements about Statements on investment behaviour are dealt with in a second paper.

Finally, here is an example of how the models described in the previous sections can be used to build a new kind of thoughtful report on the financial situation.

In all explanations, it is useful to keep the private client in mind. Most of the concepts can be applied mutatis mutandis to institutional clients.

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