JEDDAH: Despite their wealth, 41 percent of high net worth individuals (HNWIs) wish they had more self-control over their financial behavior, Barclays Wealth said in its report "Risk and Rules: The Role of Control in Financial Decision Making". The report noted that a need for increased financial discipline is likely to be felt most by those at the wealthiest end of the scale (£10 million+), where 45 percent of respondents wish they had more self-control. This is despite the report showing that those who want self-control are less likely to be satisfied with their financial situation. Globally, respondents in Asia-Pacific have the greatest desire for more financial discipline, particularly in Taiwan and Hong Kong. In contrast, developed markets show less of a desire for self-control over financial behavior, as illustrated by respondents in Spain, Australia and the US. In the Middle East, HNWIs show complex behavior towards investing and financial decision making. In the Kingdom of Saudi Arabia, HNWIs revealed a tendency to purchase illiquid assets to avoid the urge to sell investments when markets fall - 90 percent of respondents report this. Saudi HNWIs also prefer to use rules and guidelines to help them make better financial decisions, with 96 percent of respondents saying that they use rules in financial decision-making. On a regional level, Saudi HNWIs are inclined to set financial deadlines (96 percent) and have a high tendency to delegate financial decisions to others (90 percent). In the UAE, there is also a willingness to delegate financial decisions (82 percent). Respondents in the UAE also favor setting financial deadlines for themselves (96 percent) and over three quarters (76 percent) think that buying and selling often will enable them to do well in the financial markets. In Qatar, the report shows that respondents are by far the most likely to delegate financial decisions (98 percent). They also favor active portfolio management to achieve good results in the financial markets, and prefer to strategically time markets as opposed to adopting 'buy and hold' strategies. Forty two percent of Qatari HNWIs also say that they prefer to deal swiftly with bad investments and protect themselves from the downside. Greg Davies, Head of Behavioral Finance at Barclays Wealth says: "Many people will be surprised to see that wealthy individuals have a desire for greater financial discipline, however with increased wealth comes an increased complexity of investment decisions. The key thing that investors need to consider is how these decisions might fit in with their overall investment strategy, and importantly, how they fit in with their individual requirements, both financial and emotional." Soha Nashaat, CEO of Barclays Wealth, Middle East and North Africa, said: "When it comes to financial discipline, there is a desire for greater control when compared with other markets. These results present an interesting challenge for the wealth management industry in the Middle East. Clearly, more needs to be done to help clients understand their financial personality and the benefits of using financial self-control strategies." In order to understand investment behavior and the pitfalls that investors may be prone to, the report considers three personality dimensions; risk tolerance, composure and promotion vs. prevention. It noted an interesting pitfall on the theme of "emotional trading", which can tempt us to buy high and to sell low, which can cost investors nearly 20 percent in lost returns over a ten-year period. Limitations of self-control lead to what the report identifies as the trading paradox. This can potentially lead to investors becoming unable to control how often they trade. Of all the personality types, the most likely to fall into this category are those with low composure, high risk tolerance and a high loss prevention focus. The use of rules and strategies in financial decision-making are seen as hugely effective by wealthy respondents. They provide increased financial satisfaction and are associated with higher wealth levels for those who report wanting more financial discipline. The report noted a 13 percent boost in financial satisfaction and a 12 percent boost in wealth for investors frequently using strategies. The report further showed that investors use many types of financial strategies to control their decision making processes, and use rules more in financial decision making (89 percent) than they do in everyday life (72 percent). The most popular include using cooling-off periods (91 percent) and setting deadlines (90 percent). A combination of strategies is most often employed as people tend to take the multiple approaches of involving others, being more structured and/or removing temptation, it added. Davies moreover said "if we attempt to follow a fully "rational" path without self-control the effects are clear - we will overtrade, and we will buy high and sell low. As a result we will be less effective and less satisfied investors. In order to prevent this we need to take steps to facilitate our efforts to exert self-control." "This can only happen if we give something up, such as our flexibility to respond to market movements with knee-jerk reactions, or it may mean sacrificing a small amount of the performance of the "rational" portfolio in order to ensure that we have a portfolio with which we're emotionally comfortable in the short term," he added. The report further said a desire for greater financial discipline declines markedly with age, from over half (53 percent) of those aged 45 and under wanting more control over their financial behavior, to just a quarter (26 percent) among investors over 65. Younger respondents also showed a habit of deliberately avoiding information about how the market or their portfolio is performing.
