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Rating:Fund Firms Turn to Academics to Better Understand Investors Not Rated 0.0 Email Routing List Email & Route  Print Print
Friday, August 27, 2010

Fund Firms Turn to Academics to Better Understand Investors

News summary by MFWire's editors

After devising the theory being used to boost 401(k) savings, behavioral economists have joined the "in crowd" at retail facing investment management firms. The appeal, reports SmartMoney, is the potential for the field to use psychology to reshape branding and marketing to create deeper ties between investors and their investment advisor.

Zebulon Financial's David Steiner explains that the appeal of bahavioral finance lies in financial advisors' need to understand investor psychology and replace selling returns with building relationships.

"Return is completely out the window," says Steiner.

MIT professor Dan Ariely tells the magazine that the stock market's travails could not be a better marketing campaign for behavioral finance if he had designed it himself. Ariely was a featured speaker at last year's Schwab Impact [see profile] conference. Schwab is one of the mutual fund firms adopting aspects of the research, according to the magazine.

The article also quotes Cathy Smith, who is helping Allianz [see profile] find ways to influence how investors deal with spending and investing in their retirement years. Smith is co-director of the Investors Center for Behavioral Research Allianz formed earlier this year. Allianz has also signed on Shlomo Benartzi, the co-chair of the Behavioral Decision Making Group at UCLA's Anderson School of Management, according to the article.

Benartzi built his reputation with Richard Thaler with SMaRT (Save More Tomorrow) program that was developed with a research boost from Vanguard [see profile] at the end of the last century.

SmartMoney reports that some of Vanguard's two dozen staff researchers are still taking a behavioral approach to their work. That staffers created a Web-based tool that helps investors select among mutual funds by narrowing their options to a pyschologically manageable number.

Another mutual fund firm turning to the research is ING [see profile], which has run the Institute for Retirement Research over the past three years. ING's work has led to its Compare Me tool that enables investors to compare their savings with those of others who are the same age and have the same income level.

"It's pretty much an A-list of the academic world as well of the financial world," Warren Cormier, president of Boston Research Group and co-founder of the RAND Behavioral Finance Forum, tells the magazine. 

Edited by: Sean Hanna, Editor in Chief


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