If you have ever experienced real panic, brought on without warning, it is extremely unpleasant, to say the very least.

A suddenly increased heart rate. A horrible hot flush. You may quickly feel cold and begin to shake. In all, it is disorienting and difficult to focus.

How do you react in that moment, under such pressure? Panic, in a sense, is natural and rational – an overwhelming urge for flight. Of course, when emotions are at their most intense is the very moment you most need to take a breath and calmly fight against the situation you are facing.

At Dynamic Planner, we are renowned for risk profiling – risk profiling clients of advice firms; their existing portfolio; and their future investment solution, all on an ascending 1-10 scale, where one, of course, represents the lowest level of risk and 10 the highest.

Nothing ever stands still and, in our 17-year history, we have constantly strived to do things better and thus powerfully enable advice firms to secure the best possible outcome for their clients.

Back to the beginning. How do we help prevent firm’s clients panicking when they see the value of their investments plummet, as they did in March this year, during the height so far of market volatility as a result of the coronavirus crisis?

Of course, before you can begin to solve a problem, you first need to understand it, which is why in September 2019 we announced we were undertaking a new, government-sponsored, two-year behavioural science and investment study, in partnership with Henley Business School.

We already enjoy a close relationship with the International Capital Market Association Centre at Henley Business School, which co-authored the latest, psychometric attitude to risk questionnaire, which first went live in Dynamic Planner in February 2018.

This new study’s aim ultimately is to understand how investors behave when their investments fall in value – their instinctive reaction, the time it takes them to react and how improved communications and knowledge, from a professional financial adviser, can prevent detrimental reactions and ultimately lead to better investment outcomes.

We can now reveal its first findings and the result of research conducted with 610 respondents between 24 January 2020 and 31 March 2020.

Each participant or ‘investor’, so to speak, were shown hypothetical scenarios, where they had just experienced a market crash and a dramatic drop in the value of their investments.

  • Of the 610 questioned, 58% who had taken financial advice previously were concerned, while 25% were optimistic about their situation
  • Of those surveyed who had not taken financial advice previously, 74% were concerned and only 12% were optimistic – comparative drops of -16% and -13% respectively
  • When it comes to risk, individuals who had taken financial advice previously were more comfortable with it – with 13% in a medium-high risk level and 21% in a low-medium risk level (1-4)
  • Only 7% of people surveyed, who had not taken financial advice previously, were in a medium-high risk level, with 43%, a much larger proportion, in a low-medium risk level

Louis Williams, Head of Psychology and Behavioural Insights at Dynamic Planner, said: “Early findings show that, generally, those who had worked with a financial planner were more resilient; had higher levels of positive emotions and self-esteem; and were more confident in their abilities to manage their finances.”

Louis continued: “It might be the case that individuals with positive emotional attributes may be more likely to seek financial advice, rather than developing these qualities as a result of engaging with a financial planner. However, the evidence does demonstrate that there are important individual differences.

“However, when considering factors that may lead an individual to first seeking financial advice and having higher levels of resilience – such as age or wealth – we continue to observe the emotional well-being benefits of having experience with a financial planner.

“Such qualities of stability and resilience are what we hope to promote within investors in order to face periods of adversity with confidence.”

What was a typical conversation between financial advisers and their clients during this year’s crisis?

RESEARCH FINDINGS:

Research conducted with 610 respondents between 24 Jan 2020 – 31 Mar 2020. Purpose to encourage and equip financial planners to develop clients’ confidence, to better manage their money and be more resilient emotionally.

Respondents with previous experience of financial advice:

  • 58% were slightly concerned to very concerned about their financial situation
  • 25% were cautiously optimistic to very optimistic about their financial situation
  • 17% were not concerned

Respondents with no previous experience of financial advice:

  • 74% were slightly concerned to very concerned about their financial situation
  • 12% were cautiously optimistic to very optimistic about their financial situation
  • 14% were not concerned

Risk profiles [on ascending 1-10 risk scale] of respondents with previous experience of financial advice:

  • 13% were in a medium-high risk level (7-10)
  • 21% were in a low-medium risk level (1-4)
  • 66% were in a medium risk level (5-6)

Risk profiles [on ascending 1-10 risk scale] of respondents with no previous experience of financial advice:

  • 7% were in a medium-high risk level (7-10)
  • 43% were in a low-medium risk level (1-4)
  • 50% were in a medium risk level (5-6)