Clients at risk of costly errors through day trading

The research from Cerulli Associates showed that consumers who had an adviser maintained discretion over around 40 per cent of their assets, meaning advisers were helpless to assist them with making investment decision on these funds.

The asset management firm also stated that trading among young investors had “notably increased” during the current crisis, and that this client demographic was “particularly vulnerable to making investment decisions based on immediate reward”.

Given the current volatility in the market, Cerulli retail investor market analyst John McKenna said impressionable investors were likely to see big swings in share prices as an opportunity to take a large profit, which did not often end up being the case.

“When such large movements in low-priced stocks lead to double, or even triple-digit percentage gains, it is common to see investors try to get in on the act out of fear of missing the rally, while a few good picks at market lows lead other investors to feel as though they are being rewarded for their stock-picking prowess,” Mr McKenna said.

He added that it was especially important that advisers be active listeners during this period, and help clients to manage their exposure to any more speculative investments they were making in a private capacity.

“Instead of attempting to squelch clients’ interest in hopping on the latest investing bandwagon, advisers can strengthen their relationships through collaboration,” Mr McKenna said.

The firm recommended advisers attempt to set budgets and ground rules for any clients that were engaging in regular day trading, as their assistance was critical in the client avoiding any missteps.