Advisors See Sharp Increase in Behavioral Biases Among Clients: Schwab

Advisors who used these mitigation techniques were able "to secure client trust and retain assets," said Asher Cheses, associate director of wealth management at Cerulli Associates, in a statement.

Client Communications and Portfolio Construction

Advisors integrated behavioral finance principles primarily through their communications with clients (74% of those surveyed reported this), but more than half (56%) reported using those principles frequently or always in their portfolio construction for clients.

"There has never been a more critical time for advisors to incorporate behavioral finance techniques into their practices to understand and help clients stay on course to reach their long-term financial goals," said Omar Aguilar, chief investment officer and head of investments at Schwab Asset Management, in a statement. "The combination of pandemic-driven uncertainty, market volatility and speculative investing trends have culminated in an environment where behavioral biases thrive."

The Impact of FOMO and Appeal of Crypto

Over half the advisors surveyed said their clients asked often or very frequently asked about investments they heard about on social media. The questions related to the fear of missing out (FOMO) rather than fear of losing money. In response, over 70% of advisors surveyed said such investments were unsuitable for their clients, and 15% suggested they make a small allocation in a self-directed brokerage account.

Still, 60% of advisors surveyed reported that their clients had invested in cryptocurrencies; one-third said clients invested in special-purpose acquisition companies (SPACs); and almost one-quarter said clients had invested in meme stocks like GameStop and AMC.

Big price gains in Bitcoin, the non-correlation of crypto to other assets, easier access to crypto assets along with institutional-level support for custody purposes and investment vehicles have all contributed to the growing popularity of crypto assets among advisor clients, according to a panel that previewed the BeFi report with press. Financial advisors, in turn, have become more open to accommodating clients' interest in crypto assets, said Cheses.

Devin Ekberg, a managing director of professional development at the Investments & Wealth Institute, explained said a lot of the barriers to invest in crypto that used to exist for advisors managing client portfolios are starting to be removed, which will continue to lead to more adoption.

Pictured: Omar Aguilar, chief investment officer and head of investments at Schwab Asset Management