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Can Behavioral Diversity Strengthen Financial Advice?

– First Published on Nasdaq –

When financial advisors bring unique backgrounds and perspectives to the advisory process, including behavioral diversity, it can strengthen financial advice.

That’s not only a win-win for advisor and client, but it can also be the edge advisors need and the edge savvy clients are looking for. In fact, delivering consensus advice that results in mediocre outcomes will cease once advisors and clients recognize the importance of understanding behavioral diversity.

One advantage of adding behavioral diversity to the planning mix: Financial advisors can provide advice that delivers wealth creation supporting a client’s individual life goals. This advice will truly focus on the uniqueness of the client.

Behavioral diversity overdue

I wonder how much of the financial services industry has robust practices in dealing with behavioral diversity in their hiring processes? But I question how many have extended this approach and consideration to the financial advisory exchange between advisor and client?

Current diversity discussions tend to focus on gender identity, sexual orientation, age, race, ethnicity, religion, marital status and health & disability status, but little debate occurs around behavioral diversity in decision-making.

And behavioral diversity concentrates on the idea that, within a workplace, different types of behaviors work better. Why then is there little or no discussion about behavioral diversity in the financial planning process?

If behavioral diversity is defined as encompassing different and varied behavior patterns exhibited between individuals, consider these questions:

  • How can a financial advisor quickly get below the surface to understand the behavioral diversity of their clients?
  • How can advisors deliver advice that is unique and satisfies their client’s behavioral diversity?
  • How can advisors and clients have a meaningful communication exchange based on one another’s behavioral diversity?

The key is to reveal a client’s varied and unique way of thinking, not just in terms of life goals but also how clients make financial decisions and their emotional reactions to markets.

I would suggest that most of the financial planning industry can understand their clients’ bias and risk factors. But behavioral diversity refers to the traits and characteristics that make people unique. Without addressing that individuality, can you ever really achieve the “secret sauce” of truly top-flight financial advisors?

People react differently to an extraordinary range of issues and, in the process, exhibit significant behavioral diversity. This is especially true when money is involved. The emotional pull of money brings out the best and worst in individuals. This, for any financial advisor, is a potential minefield.

Objective rather than subjective

With this in mind, let’s reflect on previous articles published in this space about using a validated behavioral profiling process to identify significant levels of inherent behavior. Adding such functionality to your existing tech stack to reveal communication styles and behavioral diversity can go a long way to helping everyone feel heard and seen.

Once you have automated this aspect of the advisory process, you can get to the good stuff, planning to increase the wealth that furthers both the mundane and the exciting life goals.

For the financial planning industry to succeed, it is not enough to break down walls and start growing a behaviorally diverse profile of each advisor and client. Behavioral diversity must be understood and managed on an ongoing basis so as not to be superficial. Authenticity may be an overused word these days, but it is the critical goal here.

Onboarding this extra edge

Creating change in the financial advisory industry requires that several elements be put in place:

  • A genuine commitment to investing in data-gathering to reveal a client’s behavioral diversity.
  • The transparency to build trust through advisors-client matching.
  • Education programs that help advisors understand behavioral diversity.
  • Recognition that behavioral diversity is not tokenism and is more than and goes deeper than current DEI initiatives. (It is an “and,” not an “or.”)
  • Look at all aspects of the diversity pipeline.

Consider the difference. On one hand, a number of meetings with a client before you can start delivering a tailored financial plan and, even then, it may never be truly objective or well-focused on their individuality. On the flip, imagine a client spending 10 minutes to complete a questionnaire that delivers a deep understanding (for them and for their advisor) of every aspect of their behavioral diversity.

See Leon’s other writings for Nasdaq here.

Do Investors See Value in Wealth Management? They should, and Here’s Why

Do Investors See Value in Wealth Management? They should, and Here’s Why 

The 2020 financial climate may have been the most tumultuous of its decade. However, one thing is sure, demand for wealth management continues to grow. Today’s investors are looking for a comprehensive approach from financial institutions that would guide them forward in this new normal.

The truth is, even in the middle of this pandemic-induced uncertainty and market volatility, executive wealth management decisions were still being made. If you believe that your investors may not see value in wealth management, here’s why they should.

Financial Institution Can Adopt the Model That Fits 

While you might think that the biggest struggle is to have a breakthrough with investors, and enrolling them in your financial planning systems, the real question is where do you take it from there? 

As a financial institution, you have the ability to design your systems and incorporate wealth management components into your practice. Which makes more sense for your investors as they tend to seek out a more holistic approach. 

You see, investors are looking to discuss their entire financial vision with their advisors. Their short term goal is obviously to make smart decisions and see a substantial return on their investment. Their ultimate goal however is none other than prosperity and financial wellness. 

Investors Are Looking for a Financial Wellness Roadmap 

The financial bigger picture has never been more relevant. The pandemic-induced market uncertainty has shaken investors’ confidence in their portfolios and challenged all their strategies. The type of financial institutions they are looking to work with are those able to offer them some clarity and insight into their financial wellness roadmap.

Whilst the unpredictability of the stock market can challenge that concept, it’s all about the relationship your advisors foster with their clients. Here at DNA Behavior we believe that advisors should constantly engage their investors in discussions relevant to them, or risk losing them. 

Wealth Management also Means Behavior Management

You might be asking yourself is it our role to help investors get the maximum profit? Or to manage their behavior?

We believe that wealth management and financial planning risks are at the sum of human behavior (investors and advisors) and market risks. Our whole Financial DNA program for investors and advisors has been predicated on this. Whilst the market itself cannot be managed by an investor, their reaction to it can be. Which comes back to human behavior management. 

75% or more of your role is to save investors from themselves by helping manage their behavior. This involves educating, guiding, coaching and empowering them. What we call “Wealth Mentoring”. 

By adopting this approach you will be helping your investors obtain superior returns which far outweigh any level of fees they are being charged. The reality is that the key to successful investment is managing behavior. Wealth mentoring has the ability of transforming the investor-experience and enhance value.

Taking the Mystery Out of Investor Behavior

As we all know wealth mentoring entails helping your clients achieve greater financial goals. You provide them with guidance and assistance that unlocks their full potential, manages their emotions, and allows them to live with meaning. Which raises 2 questions: what is your role in advising clients? Is it to help them manage their behavior or to get the highest maximum performance?

I have always said that financial planning risks are the sum of human behavioral risks (client and advisor) and market risks. Our whole Financial DNA program for investors and advisors has been predicated on this. Whilst the market itself cannot be managed by a client their reaction to it can be which comes back to human behavior management. There is university research which shows that 5% of a person’s wealth comes from their investments and 95% from their behavior.

I do believe 75% or more of our role is to save clients from themselves by helping manage their behavior. This involves educating, guiding, coaching and empowering them. What we call “Wealth Mentoring”. By adopting this approach you will be helping your clients obtain superior returns which far out weigh any level of fees that you can charge. The reality is that the key to successful investment is managing behavior.

Wealth Mentoring Transforms the Client Experience and Enhances Value

For the Wealth Mentoring approach to be successful the advisor must transform the client experience they provide. The client needs to experience the feeling that their life is more than money, their money has been humanized, a sense of improved relationships, discovery of life purpose and meaning, and finally a tailored portfolio built from the inside out. Then there must be an ongoing development experience involving wise counsel with the client knowing they have an improved quality life. Understanding their behavioral style and preferences is fundamental to all of this. Behavior shapes life decisions which in turn influence financial decisions. The linkage is very close.

Importantly, the value proposition to the client needs to be communicated. There are many tangible and intangible benefits of this approach. Research shows average mutual fund investors will over a 20 year period do themselves out of nearly 60% of the return produced by the average equity mutual fund. This means the average investor will significantly underperform the market and his own investments. So, if the average mutual fund return over the last 20 years is 10.81% and the average equity fund investor has averaged 4.48% then there is a 6.33% difference which represents the cost of not having a good planner. Hence a financial planner charging fees of 1% per annum and/or a retainer is very good value.

What is great is that now we have turbulent times lots of other leading commentators are coming out of the woodwork and giving this message loud and clear. We are at the start of a cultural revolution in the role of advisors in financial planning and the investors attitude to it. A revolution that is client centered and one from which everyone who plays the right game of managing behavior will be big winners. The philosophy of Understanding People before Numbers is here to stay.

The Advisors Value Proposition of a Wealth Mentoring Approach

We have recently performed a research of 100 advisors with AUM over $50m. The conclusion is that far more client discovery could be performed and there is plenty of scope to introduce more fee based services which address the life of the client.

In my view what is ever good for the client will generally be good for the advisor in the long run. Lets look at why a behavioral “wealth mentoring” approach is good for the advisor’s bottom line let alone the credibility of their financial planning process and business.

The ROI for an advisor of adopting a systemized behavioral approach is driven by the ability to aid advisors in:

1. increasing client acquisition rates
2. increasing wallet-share among existing clients
3. providing the justification for higher advice fees
4. increasing client retention rates
5. improving advisor productivity
6. increasing the business value.

Advisors who integrate a behavioral system into their practices find that they achieve these ROI goals by:

1. Establishing trust more rapidly with prospective clients through anticipating their communication, investment, and lifestyle needs

2. Gathering more assets from existing clients by positioning themselves as the client’s trusted advisor. Wealth mentoring facilitates client interactions that go well beyond investments and provides the basis for a deeper relationship with each client.

3. Supporting higher planning and advice fees through the offer of a powerful discovery process. Financial advisors may also use client centered systems to add new revenue generating services such as couple or family facilitation, executive life balance programs etc.

4. Improving relationships with problem clients. Advisors often struggle with a segment of their clients because their natural behaviors differ greatly with those of the advisor. While advisors may keep these relationships in good times, rocky markets require more careful facilitation to help clients feel understood.

5. Advisor productivity increases because once you know the behavior of the client it is easier and quicker to identify their needs, manage them and keep them committed to a plan. Alot of time can get burned for an advisor dealing with client changes and problems after year 1 which could have been addressed up-front.

6. Greater documentation of who the client is enables relationships to be transferred to other people within the practice and also when it is sold. This has a very positive impact on business value.

In terms of metrics, here is what we base the wealth mentoring value proposition on:

1. We have seen trends that advisors who adopt a client centred methodology are increasing their gross asset under management revenues by 25% or more per annum from new clients. Further, we are seeing them increase their fee for service revenues by 15% or more per annum. Also, there is enhanced client retention. Of course success from using any system is also up to the effort of the advisor.

We believe it is possible in respect of an average practice to help the principal advisor double their net take home profit over a 4 year period. This is achieved from segmenting the client base so it is fundamentally more productive and building the AUM and fee for service revenues from the top 100 or so clients. This is a substantial return on investment from our costs and the coaching cost.

2. From point 1, there is the ongoing business benefit that the increased revenues and profits translate to increased business value on sale. What we have also seen is that the behavioral data enables greater transferability of clients which is fundamental to the business value as revenue and profit sustainability post the sale are fundamental to the value.

He’s Just Not That Into You

Are your clients cheating on you? Does the phrase “He’s just not that into you” remind you of something? Maybe a popular advice book about relationship struggles and how to accurately interpret signals your love interest is giving you? Most importantly, what does all that have to do with financial planning?

Well, knowing that 93.6% of your work as a financial adviser revolves around the behavioral management of your clients, I would say quite a bit.

How many financial advisors would you say your investors are working with at a time? Do you believe that you are the only advisor your investors have hired, or could it be that they have at least 2 or 3 more firms they are working with? 

The truth is, different investors are looking for different things. Some are seeking a self-service firm while others are more inclined to hire a full-service financial advisor. But what happens when one of your investors is looking for a balance between the two?

The main reason why your clients would look into diversifying their financial service providers is their wish to transition into a more tech-powered platform that provides them with online capabilities and potentially different advice perspectives. That is solely driven by certain behavioral styles, not all your clients will be inclined to do so.

What you need to consider here, if some of your investors are indeed interested in diversifying their financial service providers, is whether or not you are well equipped to address it and adapt.

You might think that this is an impossible notion. After all you are doing all the right things: delivering solid performance numbers, anticipating market changes, conducting engaging annual reviews. Why would they look for advice elsewhere?

Enter personality traits and behavioral biases. Financial Behavioral Biases are deep-rooted patterns of investor behaviors which, if not managed, can cause your client to make irrational decisions on a regular basis. Your role as their financial advisor is to coach them to manage these behaviors but to also be able to recognize and anticipate their behavioral biases.

With market dips, you may be feeling the opportunity to buy some bargains and assume that most of your clients trust you to do the right thing. But getting them a value doesn’t mean they are feeling good about the volatility. You assumed you trained them to look at the long term so all is right with the world.

However, your client might be wondering why you didn’t pick up the phone and give them a quick call of reassurance. And so, over time, this behavior leads the client to the feeling “you are just not that into them.”

That might be why your investors could be cheating on you. They are hedging their bets and seeing which relationship is worth keeping for the long term.

No advisor wants to admit they may be lacking in relationship skills. But why leave it to chance? Now is the time to adopt a system of objective behavioral intelligence so you can keep your clients in a long-term committed relationship with you.

With that being said, one of our most effective tools that bridges the gap of understanding between you and your client behavior, is our community builder. Powered by Natural Behavior, Financial DNA pinpoints virtually every human habit: the way investors and financial advisors communicate, invest, work, and live. Start a free trial today, and find out which unique style you match with.  

Have You Ever Seen Your Client Cry?

When you first started your professional journey as a financial advisor, did you ever think that the success of your work will rely on far more intricate things than your extensive knowledge of the market? If you have been doing this for some time you probably have realized by now that the financial success of your clients relies not only on your performance but most importantly on your relationship with them.

If you have been spending time and efforts developing a trusting relationship in order to create a customized portfolio and financial plan for your clients, then you’ve been doing it right. The trust they place in you will govern your relationship and their financial success. But what if we told you that there is one particular component that you failed to consider. A component that could obliterate all your efforts in the blink of an eye.

How susceptible is your client to outside influence? How does watching financial talk shows, the evening news, or reading the negative financial headlines in newspapers and magazines affect them?

Do they take the information for what it is, not read much into it, then draw their own conclusion? Or would they actually believe in it and see an “obvious” and “direct” correlation with their financial plan and reach out to you for an understanding and compassionate shoulder to cry on? 

Make no mistakes, no matter how irrational this might seem to you and unlikely to affect your work, nothing can be more concerning that a susceptible, impressionable, and fast reactive client who feels at liberty to change your entire scope of work and strategy because the news compelled them to do so. 

Now imagine a couple arriving together for their first annual review with you. One of them is extremely concerned that the markets are fluctuating a lot. And, since it is so close to retirement they worry that if you continue with the portfolio you have designed, it will mean major cutbacks in lifestyle spending. The other feels comfortable with the portfolio but concerned about your fee structure given all the recent press on advisors charging too much and damaging returns on retirement plans.

How would you address this? Would you dive into technical and financial related explanations to try to appeal to their common sense and convince them that the direction you’ve been going is the most suitable to their needs and financial goals? Or would you take a moment to understand them better, understand their communication style, where their fear emanates from, and phrase your answers in a way they will understand?

You see, this is not the time for you to re-sell this couple on your strategy so they don’t lose faith in you or the commitment to the plan. This is the time for you to get to know your clients better. 

Could you imagine how different the situation would be if you could identify during the on-boarding meeting with your clients those that are more emotional or whether they are attracted to the headlines? Your entire approach would change to be more client-centered to engage with them on their terms.

Don’t react. Be proactive and become a behaviorally smart advisor to build trusting relationships that will keep your “susceptible” clients engaged for life.

Don’t Reinvent Tech; Add Behavioral Power

– First Published on Nasdaq –

People are complicated. Some tell you their life story in the first few minutes. Others take time – and deep questioning – to reveal even the smallest details.

Financial advisors know that, around the emotional subject of money, gaining insight into clients’ financial personality is hard. But it doesn’t need to be. No matter how complicated – and different – each person is.

Knowing your clients at a deeper level and having real-time access to innate client behaviors and decision-making inclinations puts advisors in a powerful stance. Ready to deliver top-flight service – and results.

How will a client react to market movements? What are their biases? How do they consider and deal with risk? And what are their spending habits? Clients can tell you about themselves, and you can subjectively observe, but what if you had validated, objective client data built into systems on which you rely?

You’ve got tech; add #behaviortech

The solution is part of the move toward greater use of behavioral science. Financial advisors (and their clients) are coming to the realization that bona fide behavioral insights improve the effectiveness of financial advice – communication, service quality and outcomes.

Layering a behavioral data-gathering addition into your existing tech stack is easier than you may think. Hint: You don’t have to reinvent the wheel. Even if you don’t know what an API is, for instance, your IT people do. Imagine: A plug-in that adds behavioral info to the tech you already have.

This addition makes it possible for financial advisors to identify, engage and deliver client solutions in real time, leveraging data that informs financial planning from end to end. A behavioral tech stack combines customer engagement technology and behavioral insight data to inform client engagement. It enables the knowing-me-knowing-you element that creates trust from openness and transparency.

Plugging in personality

Client data collected through a quick, simple behavioral discovery informs the advisory process in significant ways:

  • Defining financial personality.
  • Advisor/client matching.
  • Individual client financial journey needs.
  • Quality life goal analytics.
  • Real-time access to client behavior data.
  • Client engagement via more effective communication.
  • Insights to inform marketing.
  • Eliminates information silos between client support teams.

Every financial advisor should have access to interactive business intelligence tools. And that includes but goes far beyond client EQ, to include a full range of behavioral insights. (In some cases, as many as 500-plus such insights.) That’s the power of modifying your tech stack to include the behavior module.

Be(havior) on the cutting edge

Imagine: In advance of every client meeting, whether face to face, on social media, conferencing platforms or the phone, an advisor could, at the click of a button, be able to deploy dashboards and personalized information to respond to specific client wants and needs. (Even wants and needs they may not know they have or cannot verbalize; again, you’ll be tapping into innate behavioral info.)

Best: The behavioral tech stack is so integrated into other advisor systems and platforms that client info and prompts appear as needed, with the advisor not even having to push that proverbial button. As an example, a pop-up might remind you the client you’re about to meet with has difficultly following set procedures and offers a checklist of ways you can simplify processes to ensure they stay on track.

This approach creates an experience tailored to individual client needs. Moreover, it’s the way of the future.