Communication

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Financial Advisors: Are You Ready To Embrace Artificial Intelligence?

This article first appeared on Nasdaq.

And the hits keep coming, so to speak. Never has every move, decision, and interaction with clients of financial advisors been analyzed to this degree. And that will only become more prevalent. Any form of questionable practice will be identified and challenged. It begs the question, are financial advisors ready to embrace artificial intelligence?

The use of Artificial Intelligence (AI) tools to monitor regulatory compliance is a conversation that is heating up, not just within financial services firms, but within regulatory agencies who are now considering both AI and machine-learning tools to enforce compliance.

This increased automation using AI focuses on Know Your Customer (KYC) rules, Anti-Money Laundering (AML) rules, and tax reporting.

AI isn’t all about policing the industry; its broader use can be used for financial advisors to analyze and understand how account holders spend, invest and make financial decisions, so they can customize the advice they give. The role of the financial advisor will change significantly as machines take over routine aspects of the service offering. The gap left is the key to improving the financial service.

Many organizations that deliver support to financial advisors recognize the importance of understanding people before numbers in financial planning. These organizations tend to be early adopters of AI.

Behaviorally smart financial advisors already use a validated scientific discovery process with their customers in advance of the first meeting. This measurable insight into the customer’s personality, the client’s communication style, risk patterns, decision-making approach, and reactionary market movement pressure points, is available at every touch point so clients can be managed honestly, openly and transparently.

The significance of revealing natural and instinctive financial personality and delivering targeted advice provides assurance, so advisors know the client at the deepest level – among other reasons, to mitigate compliance risks.

Information obtained from the use of an automated discovery process puts clients at the center of the financial planning process; matches advisory teams, clients, goals, and solutions; enables a customized communication approach at all stages of the client lifecycle; builds tailored portfolios; behaviorally manages client emotions; and enhances compliance and reduces complaints.

The financial industry is waking up to the use of AI. It is asking the right questions in terms of how it can add value to business models and satisfy regulatory requirements – thus demonstrating to a skeptical public that they are cleaning up their houses.

Like all technology, AI needs to be in partnership with humans. Financial advisors who use a validated financial personality discovery process work more effectively and efficiently by filtering key information from their client’s online personality profiles to inform the advice they give.

The danger is that too much focus is placed on the use of AI for detecting and analyzing brand sentiment or providing investment insights, even identifying rogue behavior – and yet missing the greater use: Getting to know the customer at a deeper level to deliver the best and most accurate advice.

The financial sector is, in a sense, being forced into this new world. Lack of trust, media and regulatory bodies sharpening their focus on compliance ensure the industry is rushing to find solutions that satisfy regulatory compliance, including staying within the bounds of the DOL’s new fiduciary rule.

Traditionally, a slow-adapter industry, the financial sector has been dipping its toe in the water in terms of using robo-advisors. Investors are drawn to this service as they no longer need to pay substantial fees for something they don’t want, need or in some cases get.

Artificial Intelligence used as a tool to put the client front and center of financial advice can and should be pursued. Technology that reveals below-the-surface information about clients will empower advisors to proactively engage said clients on what matters to them the most and on their terms.

Financial advisors, whether individual practitioners or part of a corporate organization, can no longer get away with pushing inappropriate product to investors. The customers are smarter, and the regulators clued in, so what is the smartest change to make to begin to get back the trust of customers? AI.

Get to know your customer at a deeper financial and personal level. Uncover what they want to do with their wealth. Build a relationship based on understanding their inherent approach to life, offering emotional support and becoming the go-to person when they make life decisions.

Much can and will inevitably be managed by AI automation, but most investors will want the human touch. An advisor who knows the importance of a quick phone call to a client when markets wobble or sending an interesting opportunity to an investor able to manage risk – these are the service touch points that maintain or help rebuild trust in the industry.

Financial advisors need to embrace artificial intelligence in general, and financial personality discovery tools in particular, if they are to stay ahead of the game, deliver more relevant offerings to the client and build long-term relationships.

Why not complete your own complimentary profile and see which behavioral biases may affect your financial decision-making. Click here.

To learn more, please speak with one of our DNA Behavior Specialists (LiveChat), email inquiries@dnabehavior.com, or visit DNA Behavior.

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Diversity and Inclusion Make Teams Great

This article first appeared on HR Management.

Is diversity and inclusion (D&I) in organizations and teams just the latest HR craze? Or maybe just a nod to equality compliance?

Neither. D&I, when introduced appropriately, mines the rich and often untapped talent within an organization. In fact, understanding what D&I means when implemented within a business can be the change that takes an organization from mediocrity to greatness.

Applied to teams, D&I opens doors to innovation, experience, creativity and an unmatched depth of knowledge. But – and it’s a big but – a multifaceted D&I strategy, if not handled appropriately, can lead to chaos and confusion.

The key is to tap into the inherent behaviors and biases of individuals. A highly-validated behavioral discovery process (think a quick-but-thorough assessment tool for every team player) will deliver this insight quickly, accurately and with comprehensive reports that cover every aspect of an individual’s inherent workplace and life behavior.

Such a process provides insight into hidden abilities, revealing behaviors below the surface that, if not managed, might result in disruptive behavior that could unsettle the team. It will highlight communication styles, which helps build a more engaged and productive workforce. Further, the process delivers a culture of openness, mutual respect and trust in the business environment that should satisfy any cultural or legal requirement.

Be mindful that D&I isn’t just about ethnicity, religion, gender, gender identity, sexual orientation, and other such factors; its also about the behaviors that drive performance and reveal (and channel) such behaviors, biases and communication styles to foster successful team outcomes.

Harnessing these differences without the use of a behavioral insight tool can be challenging, if not impossible. People with different backgrounds bring unique information and experiences to tasks. They also bring a significant range of communication styles, decision-making approaches, and thought processes.

In any team, there will be those who passionately and tenaciously bring a vision to completion. Others will be spontaneous, creative and challenge conventional ideas. And there will be those whose experiences and behaviors cross-pollinate, bringing unique perspectives and approaches to work in different functional areas.

Plus, its good business practice to embrace diversity and inclusion: Complex and challenging issues are more likely to be resolved when a team includes a range of talents, thought processes and behaviors.

Dr. David Rock, co-founder of the NeuroLeadership Institute and Summit, and Dr. Heidi Grant, a social psychologist, note in the Harvard Business Review that, striving to increase workplace diversity is not an empty slogan – it is a good business decision. A 2015 McKinsey report on 366 public companies found that those in the top quartile for ethnic and racial diversity in management were 35 percent more likely to have financial returns above their industry mean, and those in the top quartile for gender diversity were 15 percent more likely to have returns above the industry mean.

Teams formed based on diversity and inclusion that are behaviorally aware, behaviorally smart and which include a range of different skills, are more likely to examine facts, consider a range of options and opinions, and remain objective. They will challenge each other professionally, without causing offense or disconnect. Biases will be openly discussed and resolved. Counterproductive thinking will be constructively argued to find mutually beneficial solutions. All of this leads to more effective decision making and organizational and business improvement.

As an example, Bain and Co. research shows that decision-making effectiveness is 95 percent correlated with financial performance.

Still, diversity and inclusion cannot be a one-off initiative. You should incorporate D&I at the hiring stage, and it’s a continuing work in progress, made more effective by the introduction of tools that reveal hidden behaviors and communication styles. D&I evolves, so your approach should too.?Diversity and inclusion make teams great and inclusion will set your organization apart from your competitors and improve your bottom line.

To learn more, please speak with one of our DNA Behavior Specialists (LiveChat), email inquiries@dnabehavior.com, or visit DNA Behavior

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Financial Advisors: A Unique Approach Is Essential When Advising Entrepreneurs

This article first appeared on Nasdaq.

Getting to know a client in advance is a sound business approach; getting to know an entrepreneur client in advance is essential. From the first meeting, for financial advisors advising entrepreneurs, be relatable and accessible. They want you to advise them, so, take an interest in their professional and personal life.

Entrepreneurs can’t be put in a box – it’s no good labeling them as just another client, or you’ll lose their business.

Financial advisors must understand that entrepreneurs are driven by the need to succeed and control their own destiny. Also, entrepreneurs can cope with risk in their business, but the same may not be true of their risk tolerance in investing. Entrepreneurs are passionate about what they do and are probably already looking for the next big opportunity. Understand entrepreneur insights like these, and you may be able to build a strong advisory relationship with them. Entrepreneurs drive innovation. They can kick-start economies. Their entrepreneurial behavior is hardwired in their DNA. Still, no two entrepreneurs are the same. Yes, they may have common inherent behavioral traits, but to know and advise them, advisors should educate themselves on entrepreneur’s multifaceted behavior. Entrepreneurs are complicated people to have as clients. They’re not looking for mundane advice. Advisors need to learn how to get inside the entrepreneurs head, to understand the mind and the genetics of an entrepreneur. Entrepreneurs are wired unlike others. They see risk as a pre-requisite to attempting something new. They go into ventures knowing that if they fail, they’ll just get back up and start again. This view of business, for any financial advisor, will ring alarm bells, but it’s manageable. The key to successfully advising entrepreneurs is to know the client. With the use of a credible, scientifically based, validated behavioral discovery process, advisors can uncover significant aspects of an entrepreneurs decision-making approach. When financial personality is revealed, it can be measured, and this data will enable advisors to uniquely manage entrepreneurial clients life and financial goals. When financial advisors understand an entrepreneurs financial personality and genetic makeup, they will see how entrepreneurs tend to depart from established patterns of thinking. Their resilience and appetite for risk are inherent. Entrepreneurs are predisposed to have the following characteristics, in descending order of dominance:

  • Resilience – they achieve results, manage setbacks and rationally take quick action;
  • Risk Taker – they confidently take risks and are tolerant of losses;
  • Creativity – they are innovative with ideas and seek to differentiate;
  • Work Ethic and Focus – they pursue goals and are often ambitious and competitive; and
  • Charisma – they understand the importance of connecting with and influencing others to get on board with them.

Even so, being genetically inclined toward entrepreneurialism doesn’t guarantee that an individual will become an entrepreneur or succeed as one. It is just not enough to be born with the entrepreneurial gene, people must activate it. Financial advisors can dig below the surface to understand the dynamics of the entrepreneurial client and then target advice based on what they have discovered. Behaviorally smart financial advisors should be:

  • Comfortable testing the financial validity of an opportunity;
  • Confident enough to challenge ideas and ask questions; and
  • Trustworthy enough to encourage (yet also confront) when the entrepreneur’s ideas are spinning out of control.

When financial advisors understand that entrepreneurs are driven by the need to succeed and control their own destiny, they are less likely to put them in a prescribed client box. They won’t deliver mundane advice, instead, recognizing the importance of educating themselves to better understand the entrepreneurial mind. Remember, entrepreneurs may well think they have all the answers, but wealth creation is surrounded by emotion. Build trust with them. Most entrepreneurs will reject high-pressure sales techniques outright, preferring to build trust slowly. They will want to know you are interested in what they are trying to achieve and might use you as a business sounding-board. But, they will make their own decisions based on your input. So, give them space to think things through.

To learn more, please speak with one of our DNA Behavior Specialists (LiveChat), email inquiries@dnabehavior.com, or visit DNA Behavior

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Leaders Win By Putting People Before Numbers

This article first appeared on HR Management.

Our greatest asset is our people. How often have you heard such a statement and then wondered why attrition at the company is off the Richter scale?

After all, its a glib, meaningless statement unless the action supporting it is real. In other words, while increasing the bottom line sustains business growth, it’s the people who’ll get you there. Strict rationality kills culture.

So, if leaders genuinely put people before bottom-line numbers, business will increase, attrition and sick days will drop, and people will be at their desks longer, keen to be a part of something great they are helping to build.

Sound a bit cheesy? Not so. If boards, CEOs and other managers stewarded the finances of their companies as offhandedly as many manage people, shareholders and other stakeholders would be alarmed at the speedy decline of investments.

In fact, failure is inevitable if numbers before people is sanctioned from the top. Said another way, strict rationality kills relationships and, eventually, culture.

Everyone reading this may secretly say, we all know this, but it’s the world as we know it. People don’t have the same value as the voice of our shareholders and the bonus schemes we look forward to.

Maybe so, but an enlightened leadership team, beginning with the C-suite, should recognize that the top priority for the future is building and deploying talent effectively. This requires partnership with the HR department.

Rigorous attention to hiring – not just for talent, but for cultural fit – along with thorough onboarding practices. Add to that the use of a buddy system to get new hires installed quickly and effectively. Deploy talents into identified gaps in the business, and, on that subject, when was the last time you conducted a talent, skills, and gap audit in the business? Just saying.

An organization can’t develop its people unless it sets them up for success. And diversity and inclusion are incredibly important to understanding how to build successful businesses. Yet nothing brings greater inefficiency, and therefore poor results, than failing to connect disconnected people.

We’re all marveling at how Twitter is being used to run the USA: Imagine what Twitter and your attitude toward your people could do to or for your business. It takes just one dissatisfied executive, staff member or undervalued person with a significant following to wreak havoc.

Perhaps you already have structures in place to support and manage your people and if so – wonderful. But, do your people (at all levels) feel empowered and motivated? Do they feel they are valued? Do they understand their important role in organizational success? Do the goals of the organization align with the life goals of the people who work for you? Notably, do they trust you?

Leaders putting people before numbers should be the norm: Candidates eager to come work for you. A positive corporate culture reputation that precedes you, noting the way you value and treat people. Hopefully, even tweets that praise you as an employer.

There is nothing more empowering to any business than to demonstrate trust and transparency and sincere value of the people entrusted to your stewardship. People are smart: Set out a vision in which they are included and point them in the right direction, and they will foster collective success.

When people know they come before numbers and see their leadership demonstrating a real sense of responsibility to staff, they are fulfilled and engaged, and success follows. Such leaders realize that numbers are an outcome. And that what will get them there is their people. People are inspired by great leadership, an inclusive culture, meaningful values, and integrity.

Create this kind of environment by starting with your greatest asset: Your people.

 

To learn more, please speak with one of our DNA Behavior Specialists (LiveChat), email inquiries@dnabehavior.com, or visit DNA Behavior

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Are We Hardwired To Derail Our Own Investments?

This article first appeared on Nasdaq.

People don’t make rational decisions, including decisions about investing. The degree to which we make ludicrous choices depends on our DNA. (No, really; bear with me.) Decision making by both investors and advisors can be less reckless if we don’t understand more about individual behaviors and why we make the financial decisions we do. Are we hardwired to derail our own investments?

Factor into this mix emotion and a lack of financial education, and this further increases the likelihood that decision making can be faulty for both advisors and investors. Getting inside our brains to see what’s going on when we make decisions is not only doable, it’s also measurable.

As behavioral finance (think How and why we make the financial decisions we do) goes mainstream, investor behavior has become more accepted as the major influence on investment performance. If advisors have no read on how or why investors make certain decisions, mistakes will be made.

So how does one become what I would call Behaviorally Smart? According to its annual Quantitative Analysis of Investor Behavior, Dalbar – a financial services market research firm – says investment losses to individual investors due to their behavior is an average of 8 percent per year over the last 30 years.

And this is not just limited to the investor. Based on a study by Cabot Research, professional investment managers are leaving 1 percent to 3 percent a year on the table, which is significant when you realize the size of these large portfolios. So even the professionals who use sophisticated technology and extensive research make mental errors in decision making.

After all, they are human and must manage cognitive biases and emotions when under pressure. The more aware you are of yourself and what makes you successful and what causes failure, the better off you’re going to be financially and professionally.

 

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So, how can investors improve? There is no simple tonic to improved performance, as this requires wholesale behavioral change – a paradigm shift in how someone engages the world around them. The key, then, is understanding your unique financial personality. Among other things, this insight provides a greater level of self-awareness: Why do we repeat our mistakes?

Advisors and investors alike need to develop an investment process that provides a check yourself before you wreck yourself step to mitigate these blind spots.

Through more than 15 years of research, I have learned that easily identifiable behavioral traits lead to patterns of decision making that are very closely aligned with the structure of an investors portfolio. In other words, the combination of traits and patterns makes up your financial personality style. Your portfolio, therefore, mirrors who you are. In fact, investors should look at their portfolio as the composition of all their decisions and not just a series of market positions.

The reality is that some behavioral biases cost more than others. Based on Cabot Research, the top four ways the brain can wreck investment performance are:

  • The Endowment Effect – Holding winners too long. The investor falls in love with a winner and loses sight of the fact that its best days are gone. There is the fear of selling the position too early.
  • Risk Aversion – Selling young winners too early. The investor has fears about the future and does not want to take the bumps in the road as the stock increases in value.
  • Loss Aversion – Holding losers for too long. The investor is fearful of taking a loss and ends up with a portfolio full of losers.
  • Regret Aversion – Not adding to winners when they take off. This is an investor who is hesitant in their decision-making and backs out of building the stock position as it gains momentum.

Based on your history of decision-making, which of these patterns have cost you the most? And remember, there are many other behavioral biases, which, coupled with these, will further contribute to reduced performance. To help you on the journey of closing the investment performance gap, start with self-awareness of your behavioral traits.

For investors, this could be as simple as asking your advisor if he or she uses a validated behavioral insights tool that looks beyond risk-tolerance testing. For advisors, the time and money invested in adopting such a process can pay big dividends for you and your client, pun intended.

To learn more, please speak with one of our DNA Behavior Specialists (LiveChat), email inquiries@dnabehavior.com, or visit Financial DNA. https://financialdna.com/

Why not complete your own complimentary profile and see which behavioral biases may affect your financial decision-making? Click here

Position Your Board And CEO For A Corporate Governance Win 1

Position Your Board And CEO For A Corporate Governance Win

There have been enough inquiries, reams of paper, and stacks of books written, yet we still see shocking headlines outing bad (often criminal) behavior in the corporate world. With so much information available to address corporate governance, why is there still no understanding that the behavioral styles of executives and the resulting actions are central to the issue?

Corporate Governance includes practices and procedures by which a company is guided, balancing the interests of its many stakeholders, and ensuring there is a framework to attain agreed-upon objectives while adhering to all laws and regulations. In recent years, the U.S. Federal government has turned the spotlight on corporate governance (e.g., Sarbanes-Oxley).

Corporations rushed to find solutions to demonstrate their governance was strong. They seemed to be addressing risky behaviors. But many continued to miss the point. It’s not cynical for boards to question the rapid growth and success of a business; sometimes success has a direct correlation with rogue behavior. Yet questions aren’t asked, because success often equals bonuses.
Micro-management is not necessary. What is required are clear value statements, sound governance and risk management practices. Also needed is a board with a majority of independent and experienced directors asking tough questions, and a culture of risk-taking that is balanced. Most importantly, corporations need the behaviorally smart insight to know people before numbers. In other words, get to know who is likely to go rogue.

Position Your Board And CEO For A Corporate Governance Win

(Hear Behavioral Strategist Hugh Massie talk about Operational Risk Management.)

Board members are required to be even more accountable than employees regarding their oversight, and to hold key executives to account. The day-to-day running of the organization belongs to the CEO and management team.

Two crucial relationships in the governance debate are between the CEO and board, and the other between the CEO and CFO. The latter, in some respects, will feed into the former in that, if the CFO is vulnerable to bullying by an intimidating, strong-minded, and willful CEO, information flowing to the board will be compromised. A behaviorally smart CEO will know the value of a good relationship with their CFO, and ensure their skills and behavior complement each other. The board has a responsibility to ensure both CEO and CFO have access to and a trusting relationship with the directors.

When inappropriate due diligence has been applied to these two relationships, managerial functions will, if not watched closely, endanger the business. The CEO is responsible for overseeing the execution of the board’s directions and policies. If the board has, for instance, hired a CEO whose credentials shine but whose behavior is questionable, they will have difficulty building a transparent relationship and establishing trust.

Boards need to be ever-alert to CEOs who adopt risky practices as new business opportunities arise and the business environment improves. Likewise, they need to be alert to the CEO who is unduly pressuring other key executives. Has your business got the governance structure in place to deal with a CEO who fails the transparency test or becomes the rogue employee?

The more the board members understand the strengths and behaviors they bring to their roles, the better able they will be to ensure there is a robust strategy in place to handle inappropriate behavior.

Potentially 5 percent of the workforce includes employees that are a high-security risk. The cost of all types of fraud is a staggering 5 percent of turnover, per the 2014 Global Fraud Study by the Association of Certified Fraud Examiners (ACFE).

While larger businesses are investing more in cybersecurity and other monitoring programs, virtually nothing is being put toward identifying and monitoring costly employee behavior risks from the CEO down. The problem is that many of these insider threats are already in your business and the situation is stealthily gaining momentum. The Global State of Information Security Survey 2015 recommends that 23 percent of the annual spend on business security be directed to behavioral profiling and monitoring of employees.

Research shows that the following problems are caused by human behavior:

Combinations of human behavioral factor outliers and external environmental factors (e.g., financial difficulty) trigger emotions causing negative behavior toward the company.
Combinations of employees with too similar or too different styles working in a high-risk environment cause internal control issues.
A key part of the solution is the deployment of a validated personality discovery process, providing insights into hidden, hard-wired traits and a reliable prediction of where security or compliance risks exist.

The employee behavior review using personality assessment methodologies should be uniformly applied to every employee in the business from the top down to distill hot spot areas. The high-performing leaders down through the sales and operations teams to the disgruntled bookkeeper are not exempt – new hires, or old guard – every individual including board members.

Using behavioral insights, management can dynamically match employees with specific environmental conditions to determine their potential response. They can also discern the degree to which such responses could create rogue behavior and negative actions toward the business. Lastly, management can apply these insights towards talent re-allocation, employee evaluation, team development, and improved hiring processes.

Effective corporate governance begins with the directors in the boardroom. It includes the relationship between the board and the CEO. Understanding behaviors and interrelationships could actually be the key to delivering high-quality governance in any organization, rather than being seen erroneously, as it often is?as a soft approach not worthy of investment.

The advantage gained by institutionalizing the behavioral insights process combined with strategic oversight processes and procedures can and will deliver an environment that minimizes or eliminates rogue behavior. Don’t be part of another headline heralding: Corporate Governance Fails Again!

 

To learn more, please speak with one of our DNA Behavior Specialists (LiveChat), email inquiries@dnabehavior.com, or visit Business DNA.

Why not complete your own complimentary profile and see how to leverage your behavioral profile for success? Click here.