Researchers in San Francisco have unearthed a genetic dimension to investment risk.  The implications of these findings to risk assessment in financial services could be significant but will probably stop short of advisers swapping the risk profile questionnaire for a DNA swab.
In a paper titled “Serotonin and Risk Taking: How Do Genes Change Financial Choices”, three university professors from the US may have found an individual gene that could determine an investors’ approach to investment risk.

To use a phrase from a popular shampoo commercial: Here’s the science.  The study investigated how investment decisions and beliefs were affected by variations in the serotonin transporter gene. Although the study was small with only 60 participants, the researchers took account of their demographic and financial situation. In addition measurements were taken to assess the subjects’ cognitive abilities as well as their attitudes and beliefs towards economic decisions.  

The papers authors conclude:
“We find that individuals possessing the short version of the gene invest less in equities, are less engaged in actively making investment decisions, and have fewer credit lines. Short gene carriers do not differ from others with respect to cognitive skills, education, or wealth.”

“Psychological and brain imaging evidence shows [short gene carriers] have higher levels of neuroticism and suggests that genetically-driven negative emotional reactions induce the short gene carriers to avoid risky and complex financial choices.” You can read the full paper by clicking HERE.

The findings of this research probably won’t result in the FSA re-writing their Assessing Suitability guidance paper, which was published in March 2011. Nor will it result in financial planners carrying DNA testing kits in their cases.

What it almost certainly will mean is further research and bigger studies trying to replicate these findings. With the large body of work that has been conducted in the field of behavioral finance I wonder whether we’ll get a Universal Theory of Investing before Professor Stephen Hawking has come up with a Universal Theory of Everything.