Rotman Management — Spring 2017

96 / Rotman Management Spring 2017

of options on that front. One is to elicit the assistance of a

fee-based financial advisor, to provide advice that is tailored

to your specific situation, and isn’t influenced by commis-

sions that more traditional advisors rely on.

Another option is the idea of a ‘robo advisor’ — a class

of financial advisor that provides financial advice or portfo-

lio management online with minimal human intervention,

based in part on algorithms. This relatively new class of in-

termediary offers an array of portfolios that are customized

to investors’ characteristics, such as age, risk preference,

and so on. Fees for robo advisors are lower than mutual

funds fees, especially in Canada, and the degree of custom-

ization they offer is higher than an investor would get with

an exchange-traded fund or a mutual fund.

For people who want to take a more hands-on approach,

another option can be to hold an assortment of exchange-

traded funds rather than mutual funds. But then, you have

to really be disciplined about trying to overcome those emo-

tional urges when markets are choppy, or if your personal

circumstances are anxiety-provoking.

What are the key takeaways for people working in an

increasingly global investment landscape?

Our beliefs are largely a by-product of the environment in

which we grow up, and in an increasingly global landscape

— investment and otherwise — we are interacting more and

more with people who were brought up under very differ-

ent conditions. Culture and beliefs are largely inherited, so

when people move to a different geographic region, they of-

ten bring with them ingrained regional and cultural biases

and beliefs.

In parts of Italy, for example, the level of trust in insti-

tutions—including financial institutions — is very low, and

in these regions, stock market participation is also very low.

If, for cultural reasons, certain people aren’t participating

in stock markets, that can have consequential spillover ef-

fects, including retirement preparedness and the economic

Lisa Kramer is a Professor of Finance in the Department of Manage-

ment, University of Toronto Mississauga and a Research Fellow of

Behavioural Economics in Action at Rotman (BEAR). Her recent paper,

“Seasonal Asset Allocation: Evidence from Mutual Fund Flows,” with

M. Kamstra, M. Levi, and R. Wermers, was published in the Journal of

Financial and Quantitative Analysis and can be downloaded online.

Her 2012 paper, “This is Your Portfolio on Winter,” can also be down-

loaded online.

Rotman faculty research is ranked #3 in the world by the Financial

Times.

growth prospects for an entire region.

As we become even more globalized, we need to be

aware that every individual is a biological being with count-

less behavioural biases. We also have to be aware of this as

we’re interacting with people who might have very different

biases from us. In general, when we are designing the way

we interact with each other — including decision making in

our financial institutions — we need to be increasingly aware

of the influence of culture and the environment.

Culture and beliefs are largely inherited, so when people move to a

different region, they bring with them ingrained biases and beliefs.