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CHIEF EXECUTIVE, OLD MUTUAL WEALTH : Behavioural patterns of the affluent.
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Behavioural Patterns of Affluence
P R E S E N T A T I O N B Y
Andrew Bradley
Chief Executive, Old Mutual Wealth
W E A L T H S U M M I T
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Silvana BottegaGHIJKLM!"#"
is proudly supported by:
!
www.sa-la.org
membership@sa-la.org
+27 (0) 791787867
what is going on?
despite high levels of affluence & education the huge range of financial products & providers
available and, in the face of unprecedented lifestyle choices
& longer, more active retirements
most affluent South Africans are chronically
under-insured under-saved poorly-invested
New longevity dynamics
At 65 years of age:
– in 1800 you were dead 27 years ago – in 1900 you were dead 12 years ago – in 2000 you had 12-15 years to go – in 2100 you will only be half-way there!
source: IBISWorld (Ref 9)
We can live to be a 1000 years old
Prof. Aubrey de Grey
“the first man who will live up to 1 000 years is probably already alive now, and might even today be between 50 and 60 years old”
An Affluent Gerontocracy
21st century average EU citizen will live 30 years longer than in the 19th century
a unique, new generation of affluent, older people with a new focus on well-being and quality-of-life
Too much debt!
source: INET
30
40
50
60
70
80
90M
ar-
69
Jan-7
1
Oct-
72
Jul-74
Apr-
76
Feb-7
8
Nov-
79
Aug-8
1
May-8
3
Mar-
85
Dec-8
6
Sep-8
8
Jun-9
0
Mar-
92
Jan-9
4
Oct-
95
Jul-97
Apr-
99
Jan-0
1
Nov-
02
Aug-0
4
May-0
6
Feb-0
8
Dec-0
9
household debt to disposable income %
No savings!!!
source: INET
-5
0
5
10
15
20
25M
ar-
60
Jan-6
2
Oct-
63
Jul-65
May-6
7
Feb-6
9
Nov-
70
Aug-7
2
Jun-7
4
Mar-
76
Dec-7
7
Oct-
79
Jul-81
Apr-
83
Jan-8
5
Nov-
86
Aug-8
8
May-9
0
Mar-
92
Dec-9
3
Sep-9
5
Jul-97
Apr-
99
Jan-0
1
Oct-
02
Aug-0
4
May-0
6
Feb-0
8
Dec-0
9
personal savings to personal disposable income
insurance
-10
-5
0
5
10
15
in r
an
ds
(tri
llion)
life disability
R7.9 trillion
R12.3 trillion
R3.5 trillion
R6.5 trillion
R4 trillion
R6 trillion
required cover actual cover shortfall
Market have performed well over time but most investors have failed!
Ave
rage
fund
12.5%
-2.2%
Ave
rage
fund
10.4%
2.4%
Ave
rage
fund
9.4%
4.1%
USA Australia RSA
Investors
Investors Investors
Page 14
1 in 3 people
will live to age 96
-10
-5
0
5
10
15
in r
an
ds
(tri
llio
n)
life disability
R7.9 trillion
R12.3 trillion
R3.5 trillion
R6.5 trillion
R4 trillion
R6 trillion
required cover actual cover shortfall
30
40
50
60
70
80
90M
ar-6
9
Jan-7
1
Oct
-72
Jul-74
Apr-
76
Feb-7
8
Nov
-79
Aug-
81
May
-83
Mar
-85
Dec
-86
Sep
-88
Jun-9
0
Mar
-92
Jan-9
4
Oct
-95
Jul-97
Apr-
99
Jan-0
1
Nov
-02
Aug-
04
May
-06
Feb-0
8
Dec
-09
household debt to disposable income %
-5
0
5
10
15
20
25
Mar
-60
Jan-6
2
Oct
-63
Jul-65
May-
67
Feb-6
9
Nov-
70
Aug-7
2
Jun-7
4
Mar
-76
Dec-
77
Oct
-79
Jul-81
Apr-
83
Jan-8
5
Nov-
86
Aug-8
8
May-
90
Mar-
92
Dec-9
3
Sep-9
5
Jul-97
Apr-
99
Jan-0
1
Oct
-02
Aug-0
4
May-
06
Feb-0
8
Dec-0
9
personal savings to personal disposable income
The issues are primarily behavioural and psychological
In the same way that poor physical health is often caused by inappropriate behaviours, so too is poor financial health
short term versus long term trade-offs
tangible versus intangible
uncertainty and lack of control
live for the day
peer pressure and status
loss aversion myopic loss aversion
rules of thumb e.g. - saliency
~ overconfidence
~ anchoring
price as a proxy for quality
The independence wealth brings is aspirational
The most important benefit of wealth is freedom
Strong emotional pull of ‘being able to play by your own rules’ or ‘being your own person’
Huge potential to connect more emotionally around desires and aspirations
Understanding what makes you happy…
The need for freedom
18
“When you are 30 you need to be financially independent, when
you are 40 you need to have a buffer
against the unexpected, when
you are 50 you need to know freedom is only a step away”
sources: Kahneman et al (2004)
happiness and marriage
0%
20%
40%
60%
80%
100%
-4 -3 -2 -1 0 1 2 3 4 5+
years relative to marriage
life
satis
fact
ion
happiness & marriage
sources: Layard (2005); Easterlin (2001)
happiness and income in the US
0255075
100125150175200225250275300325
1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000
real
inco
me
(reb
ased
: 194
5=10
0)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
perc
enta
ge v
ery
happ
y
real income per head percentage very happy
happiness & wealth
the pursuit of happiness wealth is not money OECD research “Happiness Index”:
– health, job, relationships, lifestyle biggest contributors to happiness
– increased earnings makes you briefly happier what you do with it can increase your happiness…
money enables us to translate our goals and dreams into reality
approaches to happiness
pleasant/good life having as many pleasures as possible and having the
savouring and mindfulness skills to amplify the pleasures
approaches to happiness
engaging life knowing what your signature strengths are, and then
recrafting your work, love, friendship, leisure and parenting to use those strengths to have more flow in life
approaches to happiness
meaningful life using your signature strengths in the service of something that
you believe is larger than you are
Parents have aspirations for their children and want to provide them with the best opportunities in life :
Providing a well-rounded education
Providing a rich, diverse lifestyle, involving travel and a variety of experiences.
Helping children get on the first rung of the ladder in their careers or getting them on the property ladder.
However, they want to provide for their children in a way that doesn’t create dependency.
More than giving children money they want to teach their children the value of money.
More than supporting their children they want to give them the means to forge their own path.
The need to provide for others
“I give my children certificates or unit
trusts for their birthday it’s
exciting for them and a great way to
teach them the value of money”
HNW, Singapore
Nothing in life is guaranteed...
Having money can sometimes seem to be more of curse than a blessing.
Once you have wealth there is always the nagging worry that it may go away again.
There’s often a real sense of anxiety about having made the right decisions, or about making the best of what you have.
The complexity of choice and unpredictability inherent in investing don’t make things easier and people can feel overwhelmed by their options.
The need to control my anxieties
31
what do they need? number of people who
tasted
6 jams
30 jams
source: Iyengar, S. S. & Lepper, M., “When Choice is Demotivating: Can One Desire Too Much of a Good Thing?”, Journal of Personality and Social Psychology, 79, 995-1006. (2000).
what do they need? number of people who
actually bought
6 jams
30 jams
source: Iyengar, S. S. & Lepper, M., “When Choice is Demotivating: Can One Desire Too Much of a Good Thing?”, Journal of Personality and Social Psychology, 79, 995-1006. (2000).
extensive choice demotivates participation
50%55%
60%
65%
70%
75%80%
2 7 12 17 22 27 32 37 42 47 52 57
number of funds offered
participation rate
source: Iyengar and Kamenica (2006)
Needs change as a result of progressive life-stages and external events.
The reason we engage with investments in the first place may be very different to the reason we engage with them further on through the journey.
Currently investment products fail to incorporate the kind of flexibility needed to deal with the unpredictability of life events.
Either leaving investors locked in to inflexible plans or causing them to opt for simpler more short term products.
The need to change as life changes
36
These clients know that they have the ability to pick and choose who they work with.
So they pick carefully.
If they see a potential partner or provider, they often test them out with a lower risk task.
Over time, as their trust builds, they move on to bigger and more important projects.
.
The need to trust
37
“I gave an adviser $10K and I said
show me you can do something with this and then we’ll talk about the rest
of my money” HNW Singapore
“advisers have to earn the right to call you up with
new products and offers. Until
they’ve earned that trust I only want to them to keep me up to date with
what I have.” HNW Italy
This is a cliché because it’s true.
Everybody’s got a life outside wealth management and they want to enjoy that life.
For less involved clients, this means not having to deal with the unimportant details – but being given clear options so a confident choice can be made.
For more involved clients, this means not having to wait around to speak to an adviser. It means getting the information you want when you want it and in the format that’s most appropriate to you. In real time.
Saving our clients time will help them to enjoy their wealth rather than being a prisoner to it.
The need for more time
“I used to play golf but that took 4 hrs, then moved onto tennis which took 2hrs now I
play squash it only takes 45minutes. This is the reality of my life now” HNW Dubai
No matter what the knowledge level of the individuals…
See value in having a better understanding of the world of investments
Style of advice is very important
Overwhelming preference for coaching over more formal style of education
Practical advice that acknowledges their current level of understanding and builds on it
The need to understand more...
Managing behaviour “To invest successfully over a lifetime does not require stratospheric IQ, unusual business insights, or inside information.
What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework”
- Warren Buffet
changing poor financial behaviour
Unconscious
1
Undesirable behaviours occur unconsciously
2
Undesirable behaviours recognised, desirable behaviours identified, coaching required
Consc
ious
Unco
nsc
ious
External support required External support not required
3
4
Desirable behaviours unconscious, embedded
Desirable behaviours consciously self-regulated
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