Having increased financial choices is detrimental to a consumer’s investment decisions, according to financial advice fintech Capital Preferences.
Speaking at masterclass hosted by Stone and Chalk, Capital Preferences senior research adviser, Professor Daniel Silverman, said findings from a study by the US fintech provided the foundations for a new training program, which will be offered to Australian advisers in the private banking, superannuation and retail markets, and will focus on the application of game theory and econometrics to client profiling and portfolio construction.
The study found increased financial choices can negatively impact on a the way a consumer chooses to manage their portfolio investments by adding increased complexity to their decision-making and reducing their risk appetite.
Silverman said this insight has great implications for financial services firms, consumers, and marketers when designing products, portfolios and their digital experience.
“The consequences of complexity [mean] people take on less risk and take on less returns,” Silverman said.
“In addition to this, the quality of decision-making degrades.”
He said that having access to greater financial choice was both a “blessing and a curse”, as when investors were faced with a more complex portfolio set, the study showed a greater tendency for investors to be “more cautious” and “risk-averse”, a point that he affirmed often led to “sub-optimal decisions”.
“When offered a simple alternative to making a portfolio choice, this option is taken 22 per cent of the time,” he said.
The training program and research findings were announced as part of Capital Preferences’ partnership with PortfolioConstruction Forum, signalling their intention to enter the Australian market.
Capital Preferences is expected to launch its Australian product line on April 15 this year.
