By Canada Life Investment Management | July 11, 2022

Market conditions are fueling Canadians’ concerns, and emotions are running high. Understanding what matters most to them can help. In this report from Canada Life Investment Management, you’ll gain insights from behavioural finance that can lead you to stronger client relationships and better outcomes.

While early financial theory assumed that our economic decisions are geared towards optimizing risk-adjusted returns and little else, this approach greatly simplifies the reality of human experience. A second generation of behavioural finance has emerged in recent years that has attempted to capture this dynamic and provide a more holistic – and realistic – perspective. As described in Behavioral Finance: The Second Generation (2019), by Meir Statman, PhD, it suggests there are three perspectives, or lenses, through which we view economic decisions: utilitarian, expressive and emotional.

Clients benefit greatly from working with an advisor that “gets them.” Using the three lenses of behavioural finance to better understand clients and how they view investments is one way to do this. In fact, a recent survey showed that clients who manage their own portfolios had a harder time keeping emotions in check, reported higher rates of lost sleep and were more likely to regret an investment decision based on emotions. ¹