Behavioral finance: new wealth advice

28 December 2019

One of the essential components of  Wealth Management is behavioral finance, the study of how individual and interpersonal psychological factors affect the movements of global financial markets.

“The task of the consultant is to mitigate the so-called behavioral bias of individuals”, says Massimiliano Marzo, Scientific Director of the Master in Wealth Management at Bologna Business School.

The term “behavioral bias” means the investor’s instinctive reactions to unexpected market changes. An example of behavioral bias is the “disposition effect”, that is the inclination to buy the securities at their highest price level and to sell them at their minimum, which is the opposite of what a reasonable investor should do.

This happens, explains Professor Marzo, because the individual is moved by the emotional conditioning of regret, an irrational attitude for which one tries to remedy immediate choices perceived as wrong instead of waiting for changes in external conditions.

“Through behavioral finance the consultant reduces, and in some cases totally cancels, the negative effects of the decisions taken by individuals,” explains Professor March.

There are three points to consider when talking about behavioral finance: market inefficiencies, heuristics, a decision based on past experiences, and the framework, that is to say an investment choice made on the basis of how the same it has been presented.

The Wealth Management Specialist must therefore have an ad hoc training that allows it to prevent irrational user decisions to better manage their savings and invest them in a safe and profitable way.

A further fundamental element is given by the relationship of trust that is established between consultant and client.

Bologna Business School through the Master in Wealth Management provides young graduates with the appropriate skills to enter the world of asset consulting, providing the technical tools but also the soft skills necessary to create a stable relationship of trust between client and consultant.


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