SIMON BROWN: I’o chatting with Paul Nixon, head of behavioural finance at Momentum Investments. Paul, I appreciate the time today. In a recent note put out by yourselves you made the point that you’ve done extensive research during the Covid-19 pandemic, and you’ve discovered that clients suffered losses of some R600 million owing to frequent switching between funds.
So the interesting thing about this is that I think from an industry perspective we’re starting to see more and more firms using things like machine learning, and indeed advanced predictive analytics and AI to help them really get to grips with what investors are costing themselves; and to help financial advisors as well [to] help their clients make better decisions.
But the problem is really when emotion is driving that switch decision. That’s generally when you’re making the wrong choice. And in many cases, as you’ve already mentioned, the best case is often to do nothing – which is the most difficult thing to do. The data is fascinating. Are you able as Momentum Investments to put a pop-up and say, ‘pause a moment’? Or is that sort of beyond your ambit, crossing that line of advice versus investment?
So Google can sort of pop up and say, ‘Listen Simon, just remember that if you go through with this – by the way I see you’re purchasing on credit – this is actually what this flat screen TV is going to cost you, and that’s going to mean 200 bucks less in retirement. Do you still want to continue?’ That kind of stuff.
SIMON BROWN: It brings to mind two books that I’ve read over the many years. The first is Thinking Fast and Slow – that’s just how our brain works. But the other one is Nudge, which was a brilliant book. We see Discovery really did it with their Vitality, and it’s moving a lot more into financial services, where to the point it might not be financial advice, it might just be a pop-up that asks a question and gets me thinking in a way that might be better for me.
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