Do Trustees suffer from Buyer’s Remorse?

24 Aug 2020

buyer's remorse

Buyer's remorse is a form of what is known as cognitive dissonance - a period of mental discomfort caused by conflicting beliefs and attitudes.

For Trustees overseeing decisions affecting the financial future of a charitable organisation, buyer’s remorse can be triggered by concerns that the board may later question the chosen investment strategy or claim to know better alternatives. In this blog the experts at Generation Charity Consultancy aim to support and inform readers about what buyer’s remorse is and more importantly how to avoid it.

What is buyer’s remorse?

As mentioned above, buyer’s remorse is a form of what is known as cognitive dissonance. This occurs when a person holds two or more contradictory beliefs, ideas, or values and experiences psychological stress as a result. Put more simply once a purchase decision is completed, cognitive dissonance produces a feeling of mental discomfort and anxiety based on an underlying lack of confidence in the purchase decision.

Is it possible to mitigate buyer’s remorse?

Good news, yes it is, at least to a degree. At its heart buyer’s remorse is caused by a lack of confidence in the purchase decision; by completing due diligence this lack of confidence can be mitigated.

Due diligence refers to the investigation, audit, or review performed to confirm the facts of a proposal under consideration. In a financial sense, due diligence requires an examination of financial records before entering into a proposed transaction with another party.

For Trustee’s in the charity sector due diligence can be enhanced by receiving independent, regulated financial advice.

I’m looking for independent investment advice, what do I need to know?

At Generation Charity Consultancy we believe it is crucial that your adviser is regulated by the FCA and that your adviser and fund manager are not working in the same company. We believe that someone should be policing the fund manager and we are therefore passionate about independent governance.

Independent governance aims to protect you from investments that may be unsuitable and encourage good stewardship of investments.

What questions should I be asking?

Sadly, we often find that fund managers have been targeting standard indices with no relevance to your portfolio’s asset allocation. It is incredibly important to ensure your fund manager is transparent, but how do you do that? We would always suggest peer-to-peer analysis.

At Generation Charity Consultancy our analytical quarterly Peer Reports take data from circa 250,000 live client portfolios to ensure your manager is a credible performer and is managing risk appropriately.

To illustrate our point, a charity approached Generation Charity Consultancy recently having invested £26m in a popular balanced multi-asset fund, the fund had achieved 33.2% growth over the last five years and on the face of it the charity was happy with the performance.

However, our peer analysis of over 250,000 investor records confirmed a competitive return for that time period – and risk profile – should have been 41.6%, not the achieved 33.2%. That equates to a difference in excess of £2m; a sum of that size would make a substantial difference to any charitable organisation and its beneficiaries.

This highlights why it is crucial to compare the whole market, to ask questions and to understand who the consistent performers are by regularly reviewing peer performance.

How we can help

At Generation Charity Consultancy we strive to provide clear and expert advice to deliver product and service innovation which exceeds our clients’ expectations!

If you are uncertain of your portfolio’s performance and  looking for independent, regulated and unbiased investment governance (based on detailed analytical data from thousands of clients’ portfolios), then get in touch with one of the Generation Charity Consultancy team.

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