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5 Things to Know About Behavioral Finance

To be able to fully understand an investor’s decision-making process, financial advisors need to equip themselves with the knowledge, skills, and understanding of Behavioral Finance.

When taken right back to the bare bones of it all, a human being’s most basic natural instincts are based on emotions and psychological reactions triggered by a variety of events. When it comes to making investment decisions, these natural reactions are brought into this as well.

A second way that humans make decisions is through conscious thinking. Now, these behaviors are slightly different from survival behaviors because they are learned as a result of experience, and so people are able to adapt to changes in their environment. 

These natural instincts as well as the learned behaviors, all carry across into the financial decision-making actions that people act upon.

 1. What is Behavioral Finance?  

Behavior Finance is essentially understanding the underlying psychology of financial decision-making. It combines cognitive psychology with economics and finance. 

The objectives of Behavioral Finance are to understand why individuals make certain investment decisions.

For example:

  • Emotions are responsible for our quick assessments that influence financial decision-making. Positive emotions lead to more risk-taking, optimism, and in addition, buying decisions are made faster. Investors are well aware of the roller coaster of emotions they go through including hope, excitement, euphoria, fear, despair, regret, and sadness.
  • Another example is Herd Mentality. Herd Mentality is when a person feels pressured into making a decision just to conform with the largest crowd and their rationale behind it is that ‘so many people are doing it, it must be right.’ The dotcom bubble is a perfect example of this. Between 1995 and 2000, investors were backing internet-based startups hoping that they would soon make a profit. 

2. We all have biases

We all have Behavioral Biases which are irrational beliefs or behaviors that can unconsciously influence our decision-making, and stray us from rational decision-making.

However, our biases lead us to make less than optimal decisions.

The Behavioral Biases embedded in humans are responsible for irrational decisions that result in poor financial or insurance investment. We need to be made aware of our personal biases and try not to let them influence our financial decision-making. 

As Hugh Massie, our CEO and Behavioral Strategist explains, we focus on 16 Behavioral Biases that affect people’s financial decision-making. Once you can identify and understand your top two or three biases, you can become a better decision-maker, especially when under pressure.

3. Spending patterns are written all over us

Behavioral Finance is the answer for advisors who want to learn more about investors and how they intend to spend their money.

It has typically been a problem that advisors haven’t had enough information and insight into their clients’ spending patterns and as such, could only create financial plans without truly understanding what people planned on investing in or saving up long-term.

4. You can’t spell “behavior” without “risk” in it

By now, as an advisor, you should be able to understand that a person’s behavior is intrinsically coupled with the amount of risk they are willing to take. To be able to help your investors experience long-term financial success, determining their risk factor will play a major role in determining their strategy.

When you choose to work with us, you will benefit from our Financial DNA reports that provide a step-by-step approach to determining the risk behavior of clients, couples, and advisors.

You see, every single person has a Risk Behavior number ranging from 0 to 100, and it’s based on their Risk Tolerance and Risk Propensity. A higher score means they are more likely to take risks. The score is normally distributed with an average of 50 and a standard deviation of 10.

5. Financial DNA takes the guesswork out of investing

When you work with us, we help you build a system to understand your clients, where you will be able to connect with them, and customize their experiences.

By understanding your client you will be able to communicate with them in a more relatable manner; you will to know and understand their risk behaviors and spending patterns and it will be easier to understand and determine their financial goals. 

Our Financial DNA API sets us apart because it measures 500+ behavioral insights and will be a way to add a human element to your data. This is done with details on how people communicate, invest, work and live their life.

In Conclusion

At Financial DNA, we have years of experience to help you better understand your clients. If you are interested in our Financial DNA investor experience, basic Financial DNA reports, and 1:1 onboard coaching, start a free trial today.

The Behavior & Money Insights Company – An Origin Story

Today, DNA Behavior is known for its groundbreaking approach in managing client-advisor relationships. Through its 500+ insights, companies have succeeded in reshaping the way they deliver wealth management services. However, have you ever wondered how it all started? 

Chairman & Founder Hugh Massie recently sat down with Nikki Evans, our Chief Learning Officer to discuss the journey that led him to create the Behavior & Money Insights Company.  

A Reformed Accountant Turned Entrepreneur

After graduating from the University of New South Wales in Sydney, Australia with an Accountancy and Economics degree, Hugh took a position in a large accounting firm so that he could get the best education and training possible. This was a path he never questioned up until that moment because everyone around him was doing the same. 

In the 10 years he spent working with Arthur Anderson as a Chartered Accountant, he gained experience in auditing and as a tax advisor covering a range of fields of expertise. The one thing that really impacted his view on the world was the opportunity he got to work in South East Asia for 4 years, in Singapore, and Thailand. As Hugh describes it “I think something happened to me there that was important”. 

Anyone who’s ever experienced working in a foreign country can attest that cultural shock can sometimes be challenging at first, but it inevitably shapes your personality and changes you in many ways. In Hugh’s case, working in the fast growing economies of Asia provided him with a lot of operating freedom in a less structured environment. This allowed his entrepreneurial thinking that already existed to start being more fully liberated. 

A Feeling of Lack of Purpose Led to DNA Behavior

The most asked question any CEO gets is “How did you start the company?”. Hugh is no exception. Over the years, he’s been asked time and time again how it all started and how he decided to build a behavior and money insights company. People usually expect an inspiring answer, details on the spark of genius that ignited this entrepreneurial journey.
For Hugh, it actually started with a career burnout: “Somewhere I lost my passion”. Hugh continues: “I had the sense that I had to go on the street with nothing to go to and figure it out, because I’m not going to figure it out sitting in the accounting firm and I need to go and try things to find out what would work. Although, I was knew clients wanted a customized experience in how they were dealt with by their professional advisors”.

At the age of 30, Hugh was working as a wealth mentor. He was helping his clients with their financial affairs as well as teaching them about themselves. That’s when the idea dawned on him. “People have these behavioral flips – Their risk appetites are not what they would say it was, under pressure people make all these emotional decisions”. That realization right there was the transformational moment for Hugh, where he clearly saw what DNA Behavior would be about.

A Community Waiting to be Built

The Behavioral Finance world may have been limited during the time Hugh Founded DNA Behavior, but the response was absolutely overwhelming. “For the most part, I’ve met very positive people that are supportive of me, developed me, given me lessons, some good, some bad, some tough, that have enabled me to grow”. 

Today, many financial institutions have successfully implemented the DNA Behavior approach and consider it to be a substantial advantage. Providing a stellar client experience which is personalized is the ultimate goal for each advisor, so when you understand your clients on a deeper level, they feel heard, supported, and prioritized. The best part of it all is that Hugh was able to build a community of financial professionals who found a supportive environment to guide them through it all. This has become more than just a company, this is a life mission.

A Mission Greater Than Money

“Part of the identity journey is to ensure people don’t define themselves by how much money they have, they define themselves with something that is much deeper inside them. That is a gift. If that has happened to make them a lot of money then great, or, will they in the future? Fantastic.”

Ultimately, the goal is that people fulfill their potential and make whatever wealth that comes from that, and in the process live a life of meaning. 

Money is what makes the world go round, it is very important, but it’s got its place, and it’s got to be well managed. That is not just invested, that is emotionally managed as well. We are in a great position to take people on that pathway to find out who they are, what their real talents are, get them to live that journey, and then to manage themselves along that journey. And hopefully, build great relationships, not have a life of regret. That is so important. 
“My work is going to be in that zone for quite a long time, as a business leader, helping people find that identity. Really trailblazing it, being that champion. As part of helping people trailblaze their identity I will be their champion and they can see – here is someone who did it.

Care to Join Our Mission?

DNA Behavior has been a growing community for over 20 years. We pride ourselves in the impact we’ve had on many financial institutions and organizations. In the future, we will continue striving to help more advisors build long-lasting relationships with their clients. If you’re interested in giving it a try, start our free trial to Financial DNA and unlock the power of behavior.

Financial DNA Empowering Female Voices

Earlier this year, I sat down with Danny Liberatore from The Wealth Enrichment Financial Group to discuss the impact Financial DNA has had on his practice, and how it transformed the way he works with his clients. 

Working with female investors

One of my biggest takeaways from our identity conversation was Danny’s approach in working with female investors. He mentioned that most of his clients are females and that Financial DNA insights have enabled him to foster meaningful relationships with them.

You see, female investors don’t want to be treated any differently than men, however, their communications styles are different. They want to be part of the process. They have a savviness for the intricacies of our work and appreciate the educational part of it all.

Danny Liberatore

Behavioral finance insights particularly come into play in this situation when you are working with male and female partners. Their dynamics unravel from day one, and you need to pay attention to their behaviors in order to understand them better and manage their biases.

Involve both in the conversation

Danny shared with me that most of the time, the women are different from their partners, in terms of behavior and responsiveness. 

It is no secret that the financial service industry has done a very poor job trying to understand women and genuinely helping them. What happens more often than not is that they are being ignored and their opinions are unsolicited or unappreciated. 

As a financial advisor, you need to be able to wear different hats when working with couples. When you make the effort of explaining things differently to your clients and accordingly to their behavioral styles, you get instant breakthroughs. 

Danny mentioned that he’s made it a habit to always address the wife first and disclose to the husband that while he might be addressing him later on separately, he doesn’t want him to feel ignored or unappreciated. He will ensure to bring the husband back into the conversation and keep her engaged.

The truth is, once you honestly explain your process, your clients instantly feel included. It not only puts them at ease, but it builds trust. And we all know that trust is a fundamental factor in advisor/client relationships. 

This is a common situation for FI’s to find themselves in. When the female is not the breadwinner or the creator of the wealth, you’ve got to make her even more involved, without leaving the male out either.

How it usually starts 

When meeting with a potential client for the first time, pay very close attention to the couple dynamics as they unravel before you. It is common for men to take on the lead role in a conversation with their advisor, especially at the beginning. 

However, if it gets to the point where the female’s opinion is not taken into consideration or is not solicited at all in the planning process, that should be a red flag for you. You need to make the effort to always keep them engaged and involve them in the conversation.

You can also look at it from a business perspective. Let’s say you are taking on this new client that has great assets and potential for revenue growth. If you strictly focus on working with the husband, when life happens and you find yourself in an intergenerational wealth transfer situation, what are your chances to still be the financial advisor for that family? 

Final thoughts..

When working with your clients, it might feel normal to engage the one partner that takes on the role of leader and simply overlook the other. The risk you are running there is to not only alienate one of the decision makers but also falling victim to your own status quo biases. Pay attention to your client’s dynamics, keep both of them engaged, and build what could potentially be a lifetime working relationship.

Take Fresh Look at Alignment of Career and Life Purpose

– First Published on Nasdaq –

Having a purpose in life that lines up with a chosen career is what many strive for and rarely achieve. Why is that?

Maybe it’s as simple as having allowed yourself to follow the career expectations of others, only to later find life experiences, wisdom, or an event (like a pandemic!) exposes cracks in the alignment between life purpose and chosen profession.

For many, the past year has caused them to take a hard look at their life purpose and ask the questions:

  • Why am I building wealth?
  • Is this my chosen career?
  • Why am I endeavoring to achieve the next promotion?
  • Why am I allowing life to hijack deeply held life goals and purpose?

Learning from the past

As I look back on my own journey, I often joke, saying I am a “reformed CPA,” but I seriously am. Having initially had a successful career as a chartered accountant in Sydney, Singapore and Thailand, and later in the financial services industry (running my own wealth management business), I always knew my career was more than about me conforming to a way of life.

That is, conforming to the script of have a good job, buy a house, invest and increase wealth. I think you get my point. But in reality, I always recognized something was missing.

My talents made me successful in my chosen careers but did not fulfill my passion, vision and values which I wanted to define and articulate in my life purpose.

I can’t say I was overly navel-gazing or looking for meaning in life; it was simply a deep belief that something more was going to be my career and purpose. The trouble was I didn’t know what.

Getting back to basics

I began to realize that if I wanted to discover my TIPS (talent, identity, purpose and significance) and get my career and life purpose aligned, I would have to do something about it myself. Hence the birth of DNA Behavior.

I recognized that using a behaviorally smart scientifically based discovery system I would be able to uncover areas of my TIPS that were not being recognized or used in my career – or toward my life purpose.

So, some 20+ years ago I founded the DNA Behavior business. It became clear to me that everyone should know and be able to share their unique “DNA style” with family, advisors, leaders, employees and clients. I knew that if everyone could share their unique style, the world would be a better place and careers would be chosen that lined up with living a quality life and inherent passions.

What I discovered and have spent the intervening years pursuing: My purpose and priorities lay in helping people the world over become more self-empowered through greater self-awareness. What I found is that I have a knack for discovering and making practical, unique behavioral insights, particularly in the still-new, still-underutilized field of behavioral finance. This is a much stronger calling for me than providing accounting and financial services, investments, and managing real estate.

The highly validated, scientifically based, structured approach to understanding behavioral insights for identifying talents, career paths and life purpose helped me discover my passion and now does the same for millions of people globally.

There is of course an irony – and a win-win – to the fact that my personal discovery and pursuit of that will enable the same for others. Of this I am doubly grateful.

And this is not a sales pitch; rather, it’s sharing an experience about discovering life purpose and making a career from that discovery.

Sometimes life intercedes

During the past year I have spent socially distant or remote time with countless people who are questioning many aspects of their lives. Now many are reviewing their career. Not because they have lost their job, but because they’ve had time to work from home with their family and have begun to “taste” a quality life.

They want to do life differently. They want to use technology to be able to have choices about where and when they work. Even more have commented on how successful conversations have become with their advisors as many financial advisors are themselves questioning their quality life.

One common theme in these conversations: It seems creating significant wealth is no longer their “true north,” not because they don’t want wealth but because they genuinely cannot find its purpose in their lives.

Wealth is great, but not at the sacrifice of life purpose. Why not have both?

Know yourself, then help clients do same

Discovering a life purpose that becomes a satisfying career needs to follow a well-defined approach that begins, not necessarily with qualifications, but with knowing self (talents, strengths and struggles). Focusing on those factors that reveal inherent behavior is crucial before setting personal life goals that enable you to take control of life in ways that optimize performance and happiness.

This approach to building a career based on life purpose is a strategy you can take to your clients as part of discussing financial planning and investment strategies, because many are searching for purpose and meaning. Even better if you lead the discussion with how you have rediscovered yourself, re-examined your goals and re-aligned key life facets like purpose and direction.

Your Firm Isn’t Ready for ESG – Prove Me Wrong

For years, the DNA team has been writing about how the world is moving to a place where everything is hyper-personalized for every customer in every interaction. Lately, firms have been approaching us for the most personalized investment service we have seen, ESG investing. Are we finally here? Is everything personalized yet? I think not.

Firstly, I love the personalized approach to ESG investing. The ability to customize services at scale and deliver unique investment experiences to each client will be beautiful. However, in my opinion, FIs are starting to segment clients in the wrong way. Most firms are focused on segmenting clients into ESG buckets before they really know them.

Does your firm know how each of your clients communicates? Make decisions? Learns? Gives? Evaluate investment performance? If you are relying on your advice team to know and remember each unique client, good luck. Better luck if you have high turnover or there are poor notes in your CRM.

Working in behavioral science for the last decade, I know the data demonstrates that each person is unique (seriously, there are 4 trillion possible combinations in Financial DNA). And from being a millennial, I know that each of my peers wants to be treated as they are unique. Is your firm really ready for this? Does your firm really have the ability to treat each person as unique?

A 3-Dimensional challenge for your firm, are you ready?

ESG investing adds a 3rd dimension to the investing picture. While we currently operate on 2 dimensions, most firms only do 1 of those well. The 3 dimensions: First, there is the obvious investing dimension (dealing with the performance and investment vehicles themselves)… most firms do this well. Second, there’s a human dimension (dealing with the market impulses of clients, building engagement with the FI or advisor, addressing client communication needs, and decision-making habits)… most firms do this poorly. Now, firms are adding this ESG investing dimension (layering on the environmental, social, and often times political values and beliefs to their investments.

I will explain this further with my two friends, Kelly and Mike.

Dimension 1: Investments
From an investment picture, Kelly and Mike bring equal parts to the table but have little investing experience, except their 401ks. Kelly recently had a windfall from her inheritance and Mike cashed out equity from the IPO at his company. Both plan to work until their mid-60s, so they have about 25 years left to generate wealth.

Dimension 2: The human dimension

Californian, born and raised. Kelly’s stickers on her Prius could tell anyone what she believes in and the causes she supports. You better believe she composts everything and even carbon offsets her vacations. Sound like someone you’d hang out with? Well, Kelly and I have many things in common, one of which is we are both cautious. As a third-party to Kelly, I see this everywhere. Her caution in her career, her clothes, and even in her 2011 car. She accounts for every dollar she earns and is perfectly content with living in her modest 2 bedroom, single-family home with Mike for the long haul.

As luck would have it, opposites attracted Kelly to her husband, Mike. While Mike and Kelly share many views on life, their values, and their love for the environment, they couldn’t be any more different from a behavioral perspective. Mike loves his Tesla, but in contrast to Kelly, primarily because of the 0-60 speed. Mike works in SAAS sales, not for the love for tech, but for the challenge. Mike seems to be in his prime at the end of the quarter where he is below his quota and the pressure is on. Mike loves taking risks for the reward.

Working at DNA, all of us get our own friends and family accounts, and believe me, they get used! Like all of my friends, I forced Kelly and Mike to take their Financial DNA discovery. Kelly is an Adapter, 15/100 risk profile, and a Group 2 “Ultra-Conservative” investor. Mike is an Influencer, 87/100 risk profile, and a Group 7- “Aggressive” investor.

Dimension 3: The ESG Dimension

Kelly and Mike both have a love for the environment. Kelly more so than Mike, but nonetheless, they have both agreed to do everything physically and financially possible in order to make a positive impact on climate change. From a financial perspective, can your firm manage this complex, 3-dimensional ESG scenario? The reality is, Kelly would be best suited to invest in stable (but eco-friendly) investments while Mike will be constantly benchmarking their portfolio against the S&P 500, looking for a win. How would you manage this situation?

From my behavioral finance lens, many firms are not ready to deal with the complexities of this third dimension, because they haven’t mastered the human element yet. Firms are trying to tackle a one-size-fits-most approach with ESG. The reality is that all clients are different, but most firms lack the behavioral finance data to tell them apart.

Prove me wrong. I’d love to hear how you would behaviorally manage Kelly and Mike and deliver them an ESG portfolio.

Does My Advisor Understand His Own Bias (Digitally)?

– First Published on Nasdaq –

I recently had an interesting conversation with an investor who had attended a behavioral finance webinar.

He shared that his advisor’s level of communication had improved dramatically – from being less tolerant and on occasions showing bias – to having a meaningful conversations about life-goals and how to tolerate sudden market movements. “I finally felt I was genuinely being coached instead of being bullied,” he said.

It seems the advisor’s firm had recently invested in adding a behavioral tech solution to its advisor portal. The client recalled completing a 10-minute questionnaire and learning more about his investing and spending habits. In addition, the advisor now had access to a range of dashboards and personalized information that enabled him to respond to his client’s specific goals, wants and needs digitally.

The investor was more than happy to see the level of communication lift and to have the advisor considerably more focused on his individual needs. He also noted it was the advisor’s own lack of bias that was the most notable.

I pressed the investor for an example or two.

“I’m a cautious investor,” he told me, “in fact I’m risk-averse and likely to respond to troubling market movements by selling, probably at the wrong time, but that’s who I am. I always felt my advisor had an edge of criticism when I shared my concern about uncertain markets and how they would impact my life goals.”

He went on to say that the advisor, through understanding him at a deeper level and checking his own bias (the advisor is a comfortable risk-taker) now understands how his previous responses to the client’s risk aversion was at best naive and at worst unprofessional.

Understanding, overcoming bias

This exchange got me thinking about the impact of Diversity, Equity and Inclusion (DEI) in the financial services industry. When individuals are not aware of their own behavior and their own communication style, conversations can become toxic. Unintended, hidden bias is often the culprit.

That’s why doing everything possible to create an insightful human connection is so vital to so many business relationships, certainly including the financial advisory-client relationship.

Ultimately, we are all relying on a variety of video conferencing and other chat and tech platforms to conduct our business these days; however, when behavioral science guides the tech stack, inherent behaviors can be revealed in an instant digitally, making remote communication richer and more effective for all involved.

No longer is an advisor relying only on memory or CRM notes to refresh themselves on client behavior and how they might best respond to such. Behavior tech enables the advisor to know and understand natural behavior insights in real-time. By doing so they can better help the investor-client recognize that their behavioral biases are at play, providing perspective and, if needed, redirection and other tailored counsel.

These tools also can remind the advisor of their own bias and provide keys to remember when working with the client. This type of interaction creates a trusting relationship and reinforces the “know your client” fiduciary role to which responsible advisors are committed.

Feeling seen and understood

Unintended, unaddressed DEI issues are often at play when a professional conversation between an advisor and client leaves one or the other feeling stung or unheard. Consideration must be given to eliminating anything that causes confusion in a conversation because it can derail the interaction and even the entire relationship.

When a client feels behaviorally understood by their adviser, the relationship will flourish. Having insight into a client’s preferences, bias, communication styles and of course their “financial personality” reinforces the importance you as an advisor place on the relationship.

We all have blind spots. Most can be tolerated. However, those blind spots born out of ignorance are not ultimately acceptable, especially when there are tools to reveal and help correct. Add money and emotions to the equation and blind spots or bias can certainly harm or end client relationships. However, the client before and after experience above demonstrates that advisor-client service informed by validated behavioral insights is not only beneficial and powerful, but can actually save a relationship.

We can no longer sit back and tolerate a deafening silence on DEI, even if – or especially if – it is revealing itself via seemingly small but relationship damaging (or killing) occurrences. If nothing else, this recent conversation made me realize that the issues of diversity, equity and inclusion are part of the very fabric of all we do.

How will you spot advisor-client bias? How will you address it?