Emotional Intuition

Emotion is often an irrational, hard to gauge and frankly invisible force that financial advisers have to manage and deal with on a daily basis.

One of the grim and unstated realities of providing financial advice is an adviser – to earn their keep – must understand how a client is feeling about saving and investing, because understanding how they feel allows an adviser to potentially better meet and satisfy a client’s unspoken needs.

This is the really hard bit of financial planning – because the Government  (that is the law makers and regulators) tend to believe all investors and users of advice are completely rational when it comes to decision making, which of course isn’t true.

In fact  many financial advisers indicate that managing the emotions of their clients is one of the greatest challenges they face on a daily basis. In the same breath they will also tell you that one of the biggest value-add they provide to their clients is peace of mind.

Financial Advisers need to manage their client’s emotional swings to avoid rash investment decisions that may ultimately prove to be detrimental, however at the same time there may be occasion to bend or to lead their client’s mood.

However – it turns out that the mood of the mass of investors is a really, really good tool for prediciting the future of investments in Australia.

For the past six years CoreData has produced a quarterly Investor Sentiment Index (ISI) that takes the temperature of the mood among retail investors, which is designed to help planners understand how investors are feeling about investments..

For the first time CoreData has mapped the movements against the AXS All Ordinaries Index with interesting results.

According to the CoreData ISI, retail investors began to become nervous about investment markets somewhere between September and December 2007, BEFORE the GFC decimated markets worldwide.

To this burningpants’ consultant this shows the emotional nature of retail investors is not always something financial advisers should discount.

It makes you wonder how many advisers were acting on their clients concerns in late 2007 and how many were ‘managing’ these fears.

The CoreData Investor Sentiment Index is a quarterly publication available to purchase as a one off or as an annual subscription. For more information please contact CoreData on 02 9376 9600.