One in Three UK Wealthy Want More Financial DisciplineBy Barclays Wealth, PRNE
Saturday, June 4, 2011
LONDON, June 6, 2011 -
- New report provides in-depth global analysis into financial
personalities of the wealthy
- Financial self-control strategies used less in the UK, despite their
link with investment performance
- Emotions that tempt us to buy high and sell low can cost investors
nearly 20% in returns over ten years
- Those with GBP10m+ top list in desire for more financial discipline
Despite their net-worth, a third (33%) of wealthy individuals in the UK
wish they had more self-control over their financial behaviour, says the
latest report in the Barclays Wealth Insights series. Interestingly, of all
global respondents, a need for increased financial discipline is likely to be
felt most by those at the wealthiest end of the scale (GBP10m+), where 45% of
respondents wish they had more self-control. This is despite the report
showing that those who want self-control are less likely to be satisfied with
their financial situation.
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Published today, the report, Risk and Rules: The Role of Control in
Financial Decision Making, is based on a survey of 400 high net worth
individuals in the UK and more than 2,000 across the globe, and provides an
in-depth examination of wealthy investors from a behavioural finance
perspective. It considers the different financial personality traits that
exist amongst wealthy investors, and the different self-imposed rules and
strategies that they put in place to deal with these traits. It shows that
"emotional" trading can cost investors nearly 20% in returns over a ten-year
period[i], and the report shows that those who employ high strategy usage
have on average 12% more wealth than those who do not use rules.
When compared to respondents across the globe, those in the UK actually
have a lower desire for financial discipline than most. Globally, 41% of
high-net worth individuals wish they had more self control over financial
behaviour, with the figure rising as high as 86% in Taiwan and 70% in Hong
Greg Davies, Head of Behavioural Finance at Barclays Wealth said:
"Despite the fact that we show less of a desire for self-control in the UK,
many people will be surprised to see that wealthy individuals want greater
financial discipline. However you have to remember that with increased wealth
comes an increased complexity of investment decisions. The key thing that
investors need to consider is how these decisions might fit in with their
overall investment strategy, and importantly, how they fit in with their
individual requirements, both financial and emotional."
David Semaya, Head of UK and Ireland Private Bank at Barclays Wealth
said: "This report provides an in-depth study into the financial
personalities of wealthy investors in the UK and gives a fascinating insight
into their behaviour. When it comes to financial discipline, there is a
desire for more control which presents an interesting challenge for the
wealth management industry. Clearly, more needs to be done to help clients
understand their financial personality and the benefits of using financial
Emotional trading and lost returns
In order to understand investment behaviour and the pitfalls that
investors may be prone to, the report considers three personality dimensions;
risk tolerance, composure and promotion vs. prevention.
It reveals an interesting pitfall on the theme of "emotional trading",
which can tempt us to buy high and sell low, which can cost investors nearly
20% in lost returns over a ten-year period[ii]. Limitations of self-control
lead to what the report identifies as the trading paradox. A third of those
polled (32%) say that trading frequently is necessary to get a high return,
however these respondents are over three times more likely to believe that
they trade too much. In total, almost half (46%) of respondents who believe
you have to trade often to do well think that emotions force them to do this.
This can potentially lead to the investor becoming unable to control how
often they trade. Of all the personality types, the most likely to fall into
this category are those with low composure, high risk tolerance and a high
The use of rules and strategies in financial decision making are seen as
hugely effective by wealthy respondents. They provide increased financial
satisfaction, and are associated with higher wealth levels for those who
report wanting more financial discipline. Comparing the group with the
highest strategy usage to the lowest strategy usage, we see a 13% boost in
financial satisfaction and a 12% boost in wealth.
The report shows that UK respondents use many types of decision-making
strategies to control their decision-making process, and use rules more in
financial decision making (83%) than they do in everyday life (62%). The most
popular include waiting before executing a financial decision (90%) and
setting deadlines (87%).
Despite this, the use of rules is much less popular in Britain than
across the globe, where 89% use rules in finance and 73% in their everyday
life. The most popular rules globally include using cooling-off periods (92%)
and setting deadlines (90%).
The report shows that a combination of strategies is most often employed
as people tend to take the multiple approaches of; involving others, being
more structured and/or removing temptation.
Greg Davies adds: "If we attempt to follow a fully "rational" path
without self-control the effects are clear - we will overtrade, and we will
buy high and sell low. As a result we will be less effective and less
satisfied investors. In order to prevent this we need to take steps to
facilitate our efforts to exert self-control.
"This can only happen if we give something up, such as our flexibility to
responding to market movements with knee-jerk reactions, or it may mean
sacrificing a small amount of the performance of the "rational" portfolio in
order to ensure that we have a portfolio with which we're emotionally
comfortable in the short term."
The Zen of Ageing
The report also shows how a desire for greater financial discipline
declines markedly with age amongst global respondents, from over half (53%)
of those aged 45 and under wanting more control over their financial
behaviour, to just a quarter (26%) of over 65s. This in turn results in less
need for the use of strategies. This is also associated with a decrease in
stress and an increase in financial satisfaction.
Younger respondents also show a habit of deliberately avoiding
information about how the market or their portfolio is performing - 82% of
those aged 45 and under do this, compared to just 68% of those aged 65 and
About Barclays Wealth:
Barclays Wealth is a leading global wealth manager, and the
UK's largest, with total client assets of GBP166bn, as at 31 March 2011. With
offices in over 20 countries, Barclays Wealth focuses on private and
intermediary clients worldwide, providing international and private banking,
investment management, fiduciary services and brokerage.
Barclays Wealth is the wealth management division of Barclays.
Barclays is a major global financial services provider engaged in retail
banking, credit cards, corporate and investment banking and wealth management
with an extensive international presence in Europe, the Americas, Africa and
Asia. With over 300 years of history and expertise in banking, Barclays
operates in over 50 countries and employs 147,500 people. Barclays moves,
lends, invests and protects money for customers and clients worldwide
For further information about Barclays Wealth, please visit our website
[i] This effect was found in a study commissioned by Barclays Wealth at
the Cass Business School from 1992 to 2009. The total return of UK equity
funds was 6.5% but the average investor earned only 5.3%. Compounded over 10
years this difference is quite significant - it is a sacrifice of nearly 20%
of one's return. Many other studies have shown similar results.
For further information contact: Cohn & Wolfe: James Pieslak, james.pieslak at cohnwolfe.com , +44(0)20-7331-5309, Barclays Wealth: Louise Pancott, Corporate Communications, Louise.Pancott at barclayswealth.com , +44(0)20-3134-7303
Tags: Barclays Wealth, June 6, London, United Kingdom