What attracts investors’ attention impacts their decisions. As humans, we can only process so much information – so we focus on what catches our eye. That’s why people have been found to invest based on noise in the news, high trading volumes, attention-grabbing information or advertising.
Today, advised clients receive a range of reports containing data and charts. How are they interpreting those charts? Where does their attention fall, and how does that impact their decisions? Consumer Duty makes this a pressing question.
Research shows that investors place great emphasis on past performance when making future decisions – hence the inclusion of the mandatory past performance warning. We all know that a period of strong returns tells us nothing about the future, nor is it relevant to a client’s long-term plan. However, clients must be shown performance charts, particularly during their annual reviews. Finding out how they view and act on that information helps us drive better understanding in the future.
The ‘eyes’ have it
Eye-tracking technology monitors eye movements during decision-making processes, providing insight into how we process information before making a choice. It’s been used in many disciplines, including to understand how players anticipate where a football will land or how medical professionals detect lesions in mammograms.
In collaboration with Mark Pittaccio (Quilter), Dr Eugene McSorley and Dr Rachel McCloy (University of Reading), we used the technology to explore eye movements and decisions of experts and non-experts when interacting with past performance charts. A total of 60 participants were categorised into three groups – students, clients and experts – based on their background and experience.
Participants were fitted with an EyeLink II tracker headset to monitor their eye movements while they viewed charts depicting one year of hypothetical performance. They viewed a variety of graphs with both negative and positive returns, some with a benchmark and some with only portfolio performance. For each graph, they answered about what they would do in the situation and how they felt. Would they stay invested? Did they feel concerned about what the chart showed?
Read the rest of this article in the May issue of Portfolio Adviser magazine
