Finology Summit 2021 - Program & Faculty

Finology is the interesting and unique mix of behavioural finance (“fin”) and investor psychology (“ology”) as it relates to understanding the investor mindset and giving investment advice. The finology discipline focuses on identifying investing biases, beliefs and behaviours and the investment implications. In other words, finology is where investing meets investors^TM.

In colloquial summary, “behavioural finance” is about what normal investors actually do, and “investor psychology” is about what normal investors could do, with appropriate behaviour change. Connecting behavioural finance with investor psychology helps ensure your investment philosophy spans “know the markets”, “know yourself” and “know your clients”.

Finology Summit will help you better identify and understand how your own and other people’s investing biases, beliefs and behaviours impact investment markets and portfolio construction - and therefore, investment decisions and outcomes - to help you build better quality investor portfolios and client relationships.

We’d welcome you joining us - as part of a group at a live site, or via live stream! Our full hybrid model ensures the show will go on whatever the Covid circumstances!  Register now!

Graham Rich
Dean, Portfolio Construction Forum

A quick introduction   Theme

Program  Program at a glance;  Meet the Faculty

More info & to register  Where; When; Aim; Most suited to; CE/CPD accreditation; Cost; Theme; Register now

Established in 2016, Finology Summit is THE behavioural finance (“fin”) and investor psychology (“ology”) program of the year. The program is designed and curated by our specialist, experienced and independent team and features an exceptional Faculty of experts from around the world, each offering their best high conviction insights on investing biases, beliefs and behaviours and the investment implications in the context of the program theme, “Behavioural FINance & investor psychOLOGY - understanding the investor mindset”.

Theme:  Behavioural FINance and investor psychOLOGY - understanding the investor mindset

Academic studies and financial media abound with stories of investors behaving badly due to cognitive errors, emotionality, ignorance, or a blend of each. Financial literacy studies show that people often struggle with financial concepts, including relatively simple ideas such as interest rates, while simultaneously over-estimating their level of financial knowledge. Apparent anomalies in financial markets are often attributed to “noise traders” and “dumb money” who behave badly, move in herds, and are easily misled and prone to swinging between fear and greed.

“The economist may attempt to ignore psychology, but it is a sheer impossibility for him to ignore human nature… If the economist borrows his concept of man from the psychologist, his constructive work may have some chance of remaining purely economic in character. But if he does not, he will not thereby avoid psychology. Rather, he will force himself to make his own, and it will be bad psychology.” - John Maurice Clark

In colloquial summary:

• conventional finance is about what rational investors should do. Conventional finance frameworks share several underlying assumptions about individual human behaviour, generally summarised by the notion of the “rational agent”. In commonplace usage, the term “rational” refers to a person whose beliefs reasonably reflect the information available to them, whose goals and values seem reasonable in their particular environment, and whose actions seem reasonably effective for realising their goals and values.

• behavioural finance is about what normal investors actually do. In giving investment advice, it is critically important that advisers understand how investment markets work in theory and in practice - and why there is a difference between “rational investors” and “normal investors”, resulting from an individual’s and a group’s biases. Finology encompasses behavioural finance including the concepts and impacts of biases, beliefs and behaviours, the consequences for market prices, returns, and resource allocation and the investment implications and exploitable investment opportunities.

• investor psychology is about what normal investors could do, with appropriate behaviour change. In giving investment advice, in addition to having specifically relevant behavioural finance knowledge, it is also critical that advisers practically and literally identify and understand their own and their clients’ biases, beliefs and behaviours when it comes to investing, to help clients understand their biases, beliefs and behaviours and the investment implications - and to identify where and how behaviour change is needed in order to achieve goals. Finology therefore applies behavioural finance models and investor psychology approaches to help explain “the real person”.

Of course, all of us - through our professional and social interactions - build up a set of “rules of thumb” to understand how people behave in different situations. Successful investment advisers use their experience and people skills to build strong, meaningful client relationships. As a result, much of finology may seem like common sense. But that misses the point. Finology is important because it allows us to formalise and systematise our rules of thumb, providing a broad structural framework for our already well developed understanding of human nature - so that we can identify the “why”, as well as the “how”. Attaining this deeper level of comprehension of why investment markets are behaving the way they are, of ourselves and, of our clients is crucial, given the ever-changing nature of investment portfolio construction and ever-growing regulatory oversight of financial advice.

Wealth management professionals face an important and challenging task as they seek to develop a modern, evidence-based understanding of how financial markets function (i.e., one that sufficiently accounts for “human factors”) and to guide clients in understanding and improving their investment decision-making.

Finology Summit will help you better identify and understand how your own and other people’s investing biases, beliefs and behaviours impact investment markets and portfolio construction - and therefore, investment decisions and outcomes - to help you build better quality investor portfolios and client relationships.

Wednesday 13 October 2021

 
AEDT 8.15am - Live stream starts

 
AEDT 8.45am - Pre-opening scene-setter

 
AEDT 9.00am - Critical Issues Forum

Behavioural FINance & investor psychOLOGY - understanding the client mindset
We all have a responsibility to understand how our own and other people’s different investing biases, beliefs and behaviours impact investment markets and portfolio practices - and therefore investment outcomes. Connecting behavioural finance with investor psychology helps ensure practitioners’ investment philosophy spans “know the markets”, “know yourself” and “know your clients”. In other words, Finology is the unique mix of behavioural finance (fin) and investor psychology (ology) as it relates to giving investment advice to individual investors. It is where investing meets investors™.
- Graham Rich, Dean, Portfolio Construction Forum (Sydney)

Prep!
Watch:  Economics has come full circle
Read:  Backgrounder: Finology
Complete: Your Finology Benchmarking Indices self-assessment - note, this is for investment advisers only

 
AEDT 9.05am - Critical Issues Forum

The financial services industry has made money boring
People love money, and all the things it can do for them and their loved ones. Money is sexy, liberating, and fun. However, the financial services industry has disconnected people from their money. They’ve done the impossible and made it boring, opaque and difficult to understand. If we better understand the psychology of money, we can better help our clients.
- Adam Ferrier, Founder, Thinkerbell (Sydney)
Adam is one of the leading consumer psychologists in Australia, and an authority on behavioural economics.

 
AEDT 9.45am - Critical Issues Forum

Helping clients decumulate responsibly promotes well-being
The same mind-set that works so well when people are building their nest egg for retirement can damage their quality of life in retirement. Many retirees have a difficult time changing their mindset from a saver to a spender. Even people who want to “smooth” spending during their entire life cycle find it difficult to estimate their life-cycle wealth. Moreover, people find it difficult to resolve conflicts between wants for spending and wants for saving - and we reconcile conflicts between these wants using framing, mental accounting, and self-control rules. You help your clients accumulate responsibly - you can help your clients decumulate responsibly, too.
- Professor Meir Statman, PhD, Professor of Finance, Santa Clara University (Cupertino)
Meir has helped pioneer the field of behavioural finance. His research focuses on behavioural finance. He attempts to understand how investors and investment managers make financial decisions and how these decisions are reflected in financial markets.

Prep!
Read:  Time for a big shift

 
AEDT 10.50am - Morning Break

 
AEDT 11.05am - Special Interests Forum - choice of concurrent sessions:

1.  Positive ESG selection gives more sustainable returns than exclusion
It is possible to generate both financial returns and positive environmental and social impact from fixed income portfolios. Positive selection creates a broader universe of sustainable companies, and therefore a greater opportunity set than negative or exclusionary policies. The in-depth analysis involved in a positive selection approach provides confidence in the sustainable practices of these business – and companies with sustainable business practices are likely to be better credits in the long term, providing a degree of downside protection. As a result, positive selection delivers more sustainable risk-adjusted returns than a stand-alone exclusionary approach.
- Stephen Fitzgerald, AO, Chairman & Founder, Affirmative Investment Management (London)

2.  Equity income is key to providing better retirement outcomes
Under our current defined contribution system, the retiree bears all the risks - longevity risk, inflation risk and investment/sequencing risk. Empirical evidence shows that retirees have a bias against drawing down on capital, and this preservation of capital is likely explained by the need to insure against these risks. A high equity income strategy tailored for retirees is a core solution for providing better retirement outcomes, maximising income while leaving capital intact.
- Don Hamson, PhD, Managing Director, Plato Investment Management (Sydney)

3. A reductive macro-economic framework can manage biases
Heuristics such as availability bias, herd instincts and extrapolation that get in the way of making the right decision at the right time are the most prevalent at the extremes. When markets are exuberant it is difficult to see - let alone act - against the hubris. When markets are down in the dumps, it is difficult to see past the misery. An example is Covid. Initially, it was a common cold (complacency), then it became a never-ending lockdown and recession (doom and gloom). Now, there is optimism after the stimulus fuelled recovery. Managing these heuristics is even more important when investing in emerging markets, where so many of our impressions of what is happening on the ground are coloured by opinions of different media outlets with their own respective filters. So why is it so hard to manage our behaviour biases? It may be because heuristics are so genetically programmed into us as humans that none of us can quite pull ourselves free from the gravity. In the age of rising geopolitical tension, fake news and social media silos that reinforce our base instincts at every turn, this can move us away from the true north. How do we centre ourselves in reality? A reductive macro-economic framework may be the answer, helping centre our qualitative assessment and decision-making using high “signal-to-noise” ratio data that tell us what is really happening in economies and market sentiment.
- Joseph Lai, CFA, Principal, Portfolio Manager & CIO, Ox Capital Management (Sydney)

Prep!
Read:  The case for emerging markets - part 1

4. Simplicity wins in financial decision making
There are strong behavioural biases that attract investors to complex strategies. We know that outperforming the market is hard, so it makes sense that it takes a complex approach to do so. It’s difficult to separate skill from luck, so complexity serves as a mental shortcut to help identify competence. Complex approaches to investing include thematic investing, market timing and hedge funds, all of whcih carry an air of sophistication. However, introducing complexity will, on average, diminish the odds of success and detract from returns. To make better financial decisions, eschew complexity and embrace simplicity.
- Stephen Arnold, CFA, Managing Director & CIO, Aoris Investment Management (Sydney)

 
AEDT 11.45am - On the move

 
AEDT 11.50am - Critical Issues Forum

Finology benchmarking matters
The finology domain has been the focus of considerable research and innovation in the past decade. Investigations into investor biases, beliefs, and behaviours - and the implications for investor portfolios and the adviser-client relationship - continue to evolve and yield important insights. Moreover, expectations related to “know your client” and “know yourself” have risen considerably in recent years, with many new possible skills, techniques, and strategies with which investment advisers can (or should) be proficient. The Forum created the Finology Benchmarking Indices (FBI) as a critical input into continuing professional and practice development. The FBI encourages reflection on your mastery of the finology domain and how well you are integrating finology concepts, techniques, and self-awareness, into your practice. It also provides meaningful points of comparison with peers. The FBI benchmark dataset as a whole, representing more than 450 investment advisers from Australia and New Zealand, offers an intriguing snapshot into finology proficiency and practice that may challenge your assumptions. Knowledge and proficiency in finology is essential to knowing yourself and your clients – and to developing ever better relationships with clients to help them achieve their goals. Finology benchmarking matters!
- Rob Hamshar, Principal - Finology Research, Investment Management Research Program, Portfolio Construction Forum (NZ)
Rob manages several of Portfolio Construction Forum’s finology domain initiatives, including the Finology Benchmarking Indices (FBI) program and the finology Research Review series.

Prep!
Watch:  To improve client discovery, we must focus more on self-awareness
Read:  Backgrounder: Finology
Complete: Your Finology Benchmarking Indices self-assessment - note, this is for investment advisers only

 
AEDT 12.45pm - Lunch Break

 
AEDT 1.15pm - Critical Issues Forum

We must tune clients in for a long-term low return world
Australian cash rates will stay low until the mountain of home loan debt is repaid - and that will take decades. Low cash rates mean low bond rates. Low interest rates mean high asset prices, which means much lower returns lie ahead for all asset classes. Low future returns have many implications - not the least of which are finology-related. Should we warn our investor clients of what lies ahead? How do we keep them engaged? How do we keep them from chasing rainbows? Our communications strategy must be in tune with this new environment.
- Tim Farrelly, Principal, farrelly’s Investment Strategy (Sydney)
Tim is the Principal of farrelly’s Investment Strategy, the first independent, specialist asset allocation research service for investment advisory firms in Australia and New Zealand.

Prep!
Read:  Japan is different!
Read:  The inflation genie is about to leave the bottle
Read:  Investors have to accept more risk to meet their goals

 
AEDT 1.35pm - Critical Issues Forum

Advisers are key to retiree clients’ happiness and well-being
A recent independent research study looking into retirement from the perspectives of over 1,500 older Australians found that finances are at the fulcrum of their happiness and well-being. But it’s complicated. There is a paradox in that while the absence of financial stress is a major driver of well-being, increasing wealth is not. And, the study found that financial advisers are the keystone to retirees’ well-being: relieving retirees of their short-term stressors; providing retirees with a sense of control in their lives; providing confidence that they can deal with the unexpected; enabling retirees to nurture relationships; and, helping retirees live consistent with their values.
- Jason Andriessen, CFP, Consulting Partner, MYMAVINS (Sydney)
Jason has more than 25 years’ experience in financial services with various roles across research, data science, financial advice, marketing and product management.

 
AEDT 2.15pm - On the move

 
AEDT 2.20pm - Special Interests Forum - choice of concurrent sessions:

1.  Words matter and must be regulated
Regulation states that fund managers must not mislead clients. However, subtle nuances around word choice, connotations and links to performance can distort framing. While prescribed scales exist for risk, analysis shows inconsistent application. Gradable adjectives (e.g. strong) can be subjective. Examples like the Beaufort Wind Scale assign words to speeds. Analysis of market data shows the distribution of outcomes. The “Isles scale” maps asset class returns to pre-defined words for given time periods for the purpose of investment communication. Prescribing universal implementation of this approach would remove a dangerous loophole in the regulation.
- Douglas Isles, Investment Specialist, Platinum Asset Management (Sydney)

2.  Often, adviser biases are more important than client biases
As investors themselves, advisers can suffer from the very biases they attempt to combat within their clients. However, these traditional behavioural finance biases manifest in ways unique to advisers. By failing to account for those biases in the design and implementation of investment solutions, advisers risk the delivery of optimal client outcomes and deepening relationships.
- Jason Komadina, Director - Managed Accounts, MLC Asset Management (Sydney)

3. Private debt is an asset class that can truly preserve capital
Managing risk and preserving capital are too important to be left to the trading strategies used for many financial products. From the first approach through to final approval, private debt requires a lender to have strong relationships with borrowers, a deep understanding of their businesses, informed risk assessments, and legally binding contracts with terms and conditions that protect investor capital and generate income. These same mechanisms help the borrower and lender weather storms to their mutual advantage. Few of these steps are present in public market trading strategies, leaving investors exposed at a time when quantitative easing has inflated the price and risk of other asset classes. Private debt prices in this risk and allows you to offer investors the capital protection they deserve.
- Andrew Lockhart, Managing Partner, Metrics Credit Partners (Sydney)

4. Fossil fuel-burning utilities will benefit from a greener world
Clients and investors are concerned about investing in assets like utilities with exposure to carbon emissions due to climate change concerns, and fears over asset stranding risks. However, regulated electric utilities – even those burning coal and gas today to keep the lights on – are well positioned to navigate this. Despite concerns, these high-quality businesses should not only face very little asset stranding risk over coming decade but will be a significant beneficiary in a greener world.
- Ben McVicar, CFA, Portfolio Manager, Magellan Asset Management (Sydney)

 
AEDT 3.00pm - Afternoon Break

 
AEDT 3.15pm - Critical Issues Forum

Ethical decision making is not an oxymoron
Many assume there are two kinds of business decision makers - those who are ethical and those who are not. However, most of us are both. Recognising when a business decision has an ethical component, understanding how decision-making biases can lead to ethical pitfalls, as well as when your decisions are not aligned with your own values, enables principled business decision-making and human interaction.
Note: This is an interactive session in which you’ll use your own examples as well as be introduced to a methodology for choosing your principled decision-making strategy and help support others in the process.
- Dafna Eylon, PhD, President, Eylon Associates (Israel)
Dafna specialises in teaching people how to guide others through change including overcoming the challenges of changing people’s behaviour.

 
AEDT 4.40pm - Critical Issues Forum

Active trust building is ethical
Trust is the product of two judgements clients make about us - one is about our ability to make good things happen (competence), the other is about our motivation to make those things happen for them (benevolence). The latter also explains the bulk of their overall impression of us. So, we must never neglect demonstrations of benevolent intentions if we want to win and keep clients. And, while the signals that convey competence (e.g., certification, track record, experience) must be earned, those that convey benevolence (e.g., communication style and interpersonal skills) are within almost everyone’s reach. This means that trust could, at least partly, be won without being earned. So is it ethical to try?
- Herman Brodie, Founder, Prospecta (Birmingham)
Herman educates and advises professional investors in the use of behavioural finance, helping them improve their individual and group decision-making, and client relationship management.

Prep!
Watch:  A guide to manipulation (for honest people!)
Watch:  The trust mandate is how asset managers win and keep clients

 
AEDT 5.30pm - Finology Summit 2021 ends

The program is designed and curated by our specialist, experienced and independent team and features an exceptional Faculty of experts from around the world, each offering their best high conviction insights on investing biases, beliefs and behaviours and the investment implications, in the context of the program theme, “Behavioural FINance & investor psychOLOGY - understanding the investor mindset”.

In order of appearance