[SKBI Newsletter] Wading Into Challenges in Household Finance & Investments | Nov 2024

SKBI Newsletter | November 2024  

Wading Into Challenges in Household Finance & Investments

Research Perspective

Industry Insights

Amit Kumar
Assistant Professor of Finance at SMU

Jeffrey Jaensubhakij
Group Chief Investment Officer (GCIO) at GIC

Every year, millions of households and retail investors turn to financial advisors for investment advice. However, do all households get equally good advice? A recent SMU study focusing on the financial industry in Hong Kong suggests that the answer could be no.

In terms of household investments, ensuring adequate retirement savings is a leading concern for many households in Asian countries. During a recent meeting, Dr Jeffrey Jaensubhakij shared his insights and views on these issues.

Key Messages:

• Clients with limited financial knowledge are more likely to receive poor financial advice.
• Suboptimal recommendations occur in approximately 40% of financial advisor visits.
• Women are particularly susceptible to this “statistical discrimination”.
• Low-fee securities firms provide advice free from gender bias. In contrast, high-fee financial planners’ advice is better but adversely affects female clients.

Overall, the study finds that high-fee advisors give better advice to more knowledgeable clients. And that because women tend to have lower financial literacy, they receive worse advice. This is ironic, because the role of an advisor is to help overcome clients’ own knowledge and behavioural shortcomings. Issues related to financial literacy and gender inequality may also be relevant in other regions within ASEAN. Governments and industries may want to take action to address these challenges.

Bhattacharya, U., Kumar, A., Visaria, S. and Zhao, J., 2024. Do women receive worse financial advice?. The Journal of Finance, 79(5), 3261-3308.

Key Challenges:

• Many households in Asia may find it difficult to retire comfortably due to insufficient savings or poor investment returns. Although this is less of a concern in Singapore, some similar issues still exist.
• Households often invest for retirement through asset management or retirement plans. Yet they face the dual challenge of high management fees for asset management and low returns from existing retirement plans.
• The financial industry needs to innovate further to enhance household financial security so that government intervention is not required.

However, as Jeffrey pointed out, “Identifying the right ecosystems and policies to foster financial technologies and innovations remains a challenge in many Asian countries”. This challenge highlights the need for more academic research on household finance and investments.

Meet the Author:
Asst Prof Amit Kumar joined SMU in 2022 after completing a PhD in Finance from The Hong Kong University of Science and Technology (HKUST) Business School. His research interests lie in corporate, household, and municipal finance.

Meet the Expert:
Dr Jeffrey Jaensubhakij is GIC’s Group Chief Investment Officer and sits on the SKBI Advisory Board. He oversees the total investment portfolio and works with investment group heads to develop and manage investment strategies across all asset classes. He holds a PhD in Economics from Stanford University. He has been on the SKBI Advisory Board since 2021.

About SKBI:

The Sim Kee Boon Institute generates financial economic research through multidisciplinary collaborations involving not only the SMU community, but also research talent from around the world as well as industry and public-sector partners. The Institute will focus its efforts on the areas of (1) Market Innovations and FinTech, (2) Sustainability and Green Finance, and (3) Household Finance and Behaviour. To maintain relevance to finance practitioners and policy-makers, SKBI also adopts a view on Asian and global economic trends. View SKBI’s research. 

About the SKBI Newsletter:

This monthly newsletter provides a unique platform to connect academic researchers and industry experts. It aims to enhance the outreach of academic studies, while fostering dialogue on key insights and challenges and stimulating new ideas and collaborations.

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