At a time of unprecedented market volatility, the AXA Wealth Self study reveals a risk adverse nation, which appears to be more concerned with preserving capital rather than delivering growth.
Published in conjunction with leading academic Professor Adrian Furnham of University College London, AXA Wealth Self is the first detailed study of its kind into what people believe their attitude to risk is, and what it actually is.
The study asked consumers to rate their perceived attitude to risk when it comes to investments between one and seven, where one is very cautious and seven adventurous.
Respondents were then asked to complete the AXA Wealth 14 step risk profiling tool to identify any disparity between perceived and actual appetite.
Finally, a ‘disconnect’ score was calculated, which is the difference between what people perceive their appetite for risk to be and what it actually is.
The data reveals a nation unsure of its investment risk appetite. One in four (25%) thought they were in the lowest risk category, representing a real danger to their long term investment prospects.
However, having taken the risk profiling tool, only one in twenty (6%) fell into this category.
Overall two thirds (64%) of consumers are disconnected from their attitude to risk. A third of respondents (33%) have a stronger appetite for risk than they think, whilst 31% are less risky than they perceive themselves to be.
These have equally dangerous implications dependent on the individual’s investment objectives.
The findings also reveal that for nearly two thirds (64%) the thought of taking risks makes them feel either ‘nervous’ or ‘uneasy’, with only one in five (19%) indifferent and one in 10 (11%) claiming it makes them feel excited and invigorated.
Mike Kellard, chief executive officer, AXA Wealth, commented:
“The difference between perceived and actual self is critical for us to understand; if individuals get this wrong, there is likely to be a knock-on effect and impact on investment behaviour, and in turn, likelihood of meeting financial goals.
“We must all help educate consumers that taking a short term view of investments is not always right, especially in today’s climate.
"For the majority of consumers, investing should be looked at on at least a five year horizon, and naturally longer when retirement planning.
"Risk profiling tools are an important first step, but above all, seeking financial advice is absolutely key, and even if they then go on to invest direct, the dialogue between client and adviser should continue into the future.”
Professor Adrian Furnham commented:
“Money is a great source of anxiety for many people. Everyone knows they have to save for the future and that investing wisely is important for well-being and security.
"If UK consumers are disconnected in their appetite for risk, it could have huge connotations for asset allocation decisions and growth expectations.”
The AXA Wealth Self study forms part of a new adviser initiative, supported with a new suite of risk profiling tools, which aims to raise awareness of the importance of understanding risk and its impact on investment behaviour, individuals’ ability to meet certain investment goals, and overall well-being.
AXA Wealth believes consumers should follow a three step process when it comes to considering their risk profile.
First, before meeting with an adviser, consumers should consider how the concept of taking a risk makes them feel and weigh this up against the sorts of returns they require from investing.
Second, professional advice should be taken, where risk profiling questionnaires can be completed as part of the advice process.
Finally, regular consultations should take place to ensure the necessary changes are made to the portfolio.
