One of the challenges investment professionals face is figuring out effective ways of helping some clients become smarter about their decisions. This is one key to offsetting what Nobel Laureate Robert C. Merton calls “financially dysfunctional behavior.” Merton was the keynote speaker at a gathering of researchers, educators, financial advisers and regulators to discuss how household financial decisions might be improved through a combination of better education, advice and oversight of business practices.
Proceedings of the conference, sponsored by the CFA Institute, were posted recently. Take-aways include:
• Optimal investment behavior is limited and governed by behavioral biases.
• Numeracy and economic literacy are key and should be promoted.
• Advisers, not just their clients, need ongoing education — including on behavioral biases, especially those that pertain to the investment community.
• Simple tools can help improve investment behavior — like an investment diary, for example.
• The use of investment policy statements and spending diaries should be encouraged.
