Moral Hazard – we have a winner

1st prize: £10,000, 2nd and 3rd prize: Fortnum & Mason hamper.

The winner will receive a prize of £10,000 placed in their Saxo account. The submissions were evaluated by Dr. Daniel Beunza, management professor at Cass Business, in terms of their intellectual rigor, empirical evidence, flair, and practical recommendations. Due to the significant response, we have decided to award Fortnum & Mason hampers for the runner up and third place.

Dr. Beunza’s comments: 

Overall, the competition prompts reflection on the unique and paradoxical investment environment in which we live in -- one where the threat of risk seems to have disappeared. In this world free of downside, bad news is paradoxically interpreted as good news, because it portends lucrative future policy interventions. Yet one additional paradox of this new financial world is that the leaders of online trading platforms like Saxo are now voicing the type of worries and concerns that would have in the past come out of the regulator's mouth. In doing so, we may have unintendedly uncovered a new role for responsible companies offering technology to retail investors. Instead of monetizing, as some large banks have often done, their customers' delays and mistakes, such platforms might find it more advantageous over the long run to sensitize their customers to the possible dangers ahead. It is my hope the Moral Hazard competition does not prove to be a one-off, and that debate and deliberation among retail investors can be additionally stimulated in this manner.

THE WINNER – Andrew Carrier

Andrew is a branding, communications and marketing specialist with 24 years of experience working within the financial services industry. Prior to founding WhatsNext Partners in 2020, Andrew worked in the marketing departments of numerous financial institutions including Dolfin, Deutsche Bank and JP Morgan.

Your question assumes that investors are – to varying degrees – averse to risk. What if there was a minority that wasn’t? What if some of them actively sought out risk? And what if they started to move markets? An army of amateur retail investors has recently driven cryptocurrency prices all over the charts and taken hitherto unloved stocks like Gamestop and AMC to dizzying heights. This phenomenon teaches us that some investors worry little about risk. Perhaps they’re ill-informed or perhaps they know something we don’t. Perhaps they’re greedy or perhaps they’re principled. Regardless, these investors are chasing a thrill, not applying anything we might recognise as investment theory. Moral hazard matters not one jot to them. This wouldn’t matter if their numbers were dwindling but they’re swelling. Boring Money released research this month showing that 19% of advised clients in the UK are investing in ‘side-hustle’ accounts, alongside their main portfolio through their financial planner. A minority of investors who relish risk are now moving markets – however sporadically – in ways we could not have foreseen a decade ago. Moral hazard? Perhaps we should worry about ‘mass hazard’?

SECOND PLACE: Tony Cross

THIRD PLACE: Guy Denison-Smith

We will be featuring Tony and Guy’s submissions over the next few weeks. 

To answer Daniel’s question directly – without doubt, we will continue to raise the profile and discussion around Moral Hazard.

To help our clients build their own financial safety net and to actively manage risk, we have created a page with a selection of financial instruments. This can be found on the trading platform here.