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Financial recovery isn’t the only game in town; the emotions of future asset owners will require a rebuild too

05 June 2020

By Henry Adefope, Associate Partner

A fund manager friend, who has never seen such unpredictability in the markets, says he is focusing on his on convictions as he can’t control how financial market participants, business leaders or consumers, will behave. 

We have no idea either.   

Many headlines are rightly focusing on the eventual recovery, and what will determine whether this recovery is ‘u’, ‘v’ or ‘s’ shaped. A feature that has often been missed out is the impact on the economy has more to do with human psychology than immunology, absent a vaccine or a very effective cure, and certain economic dynamics.

Unprecedented change is imminent. As unsettling as that sounds, it’s a peculiar dynamic that may just change how those between their teens and thirties view risk.  

Emotion-led recoveries require an understanding of group behaviour, so audience insight and behaviour-led data will be crucial for mitigating business disruption. Applying understanding will be the second step; the tone adopted will be important, therefore understanding exactly how and when they communicate to them post Covid-19... should pay dividends. 

We know that events which threaten populations have a lasting impact on attitudes to risk too. In the 2013 paper by Yi Kim - The Long-Run Impact of Traumatic Experience on Risk Aversion - she examined the long-run impact of exposure to a traumatic event in early childhood on risk attitudes by studying the Korean War. Her team found that those who spent their early childhood during the peak of the war remain more risk averse five decades later, even after controlling for age. 

Generational transfer has been a prevalent theme within the investment world for good reason; some have cited as much $68 trillion moving between generations within 25 years. There is a lot to play for, for those who understand the emotional drivers of the incoming generation of asset owners.  

Risk is going to mean something completely different to the Gen-X’s, Ys and Z’s, to whom medical facemasks, social distancing and proactive hygiene will now be commonplace. Audience insight must rightly become the priority; those focused on this will make the recovery a more positive and collaborative one for their stakeholders.