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Using A Behavioral Science Tech Stack in Investment Committee Decision-Making

This article first appeared in Nasdaq

Most investment committees have a clear mission: Serve as stewards for assets of the organization they represent.

The committee must develop an investment plan according to the financial needs and circumstances of the corporation. So, if the primary role is to approve the fund’s investment objectives, how then do you ensure members of the committee have the appropriate behaviors to fulfill their role without bias?

The answer may lie in using your tech stack to power the investment committee – and its workflow.

Your next-gen investment committee

Recruiting the right people to this critical role – including having in-depth knowledge of their decision-making abilities – makes the difference between the success and failure of the investment committee.

But how do we define that fit-for-role? Is it a professional background? Education? Investment knowledge? And where does the diversity lens come in? (Or is it missing?) What about committee members’ inherent risk tolerance and behavioral bias toward investments?

Research demonstrates there are definite biases (both investment behavioral biases and workplace behavioral style differences biases) that should be considered when forming a committee with such weighty organizational responsibilities. Therefore it is increasingly important to know the inherent decision-making behavior and bias of each individual and how, in a diverse group, these differences will be managed.

Add this to your tech stack

As is the case with all critical appointments, the key lies not with their education qualifications, experience or talents, but with their ultimate behavior. What innate behaviors do they have – of which they may not even be aware – that will influence decision-making, especially financial decisions and/or those made during crisis?

Without the use of a validated behavioral profiling system of some sort, selecting individuals for an important function like an investment committee becomes little more than a lottery. And those are some weighty decisions to leave to chance.

Some financial leaders may not want to hear that their own perspective and powers of discernment may not be the only tools needed. Still, leaders committed to building the tightest, most reliable and trustworthy investment committee will want to introduce a behavioral finance (BeFi) tech tool that hones team member selection for the best possible fit and outcomes.

And why not? Tech is now an accepted part of so many aspects of financial processes, including throughout and across the investment community. In this case it is not usurping the wisdom, judgment and experience of leadership, but supplementing and heightening it by making key insights about potential committee members easier to access.

Financial planning and wealth management organizations are now investing in their value tech stack for everything from market insights and model portfolio construction to manager selection, cybersecurity and, yes, BeFi; so, using behavioral science (BeSci) to create a diverse investment committee should be welcomed, not daunting.

Behavioral diversity and better outcomes

Remember that diversity of opinion – about potential committee members and among committee members (once selected) – may not just come in the form of understanding different behaviors, bias and decision-making styles, but in experience, given that not every member of an investment committee has to be a financial expert. What is important is that members should have a wide set of perspectives and a willingness to be collaborative and open.

That’s why a depth of insight into the individuals to understand their decision-making approach and their likely response under pressure is crucial. Without such, important investment decisions will be flawed.

Selecting a BeSci expert, whether internal or external, to guide the committee using a behavioral discovery process can add a dimension of diversity to the investment committee by ensuring the group can function collaboratively and effectively while also preventing group think and other pitfalls you – and the committee – may not even know they were experiencing.

Digital key in keyhole in information security concept

Financial Advisors See Data as a Differentiator

This article first appeared on Nasdaq.

With financial advisors under considerable pressure to strengthen their competitive position through an improved understanding of their clients, adding a behavioral insight tool to the client onboarding process can help advisors obtain new insights about a client’s behavior and financial personality.

In doing so, it is imperative for firms to interrogate this data that is relevant to each client. The way to use data as a differentiator is to know clients at a deeper level. Their decision-making style, spending patterns, goal-setting motivations, approach to and tolerance of risk, behavioral biases, and responses under pressure, as well as knowing each client’s likes and dislikes and life journey.

Measuring and discussing financial behavior is the first step for advisors to get to know their clients. And we already know that, for advisors to provide valuable advice, it is key that they understand clients and client goals.

Gone are the days of form filling. Advisors need in-depth, accurate information at their fingertips. Clients already understand that life requires them to be subjected to an array of technology experiences. They get it.

What many clients do not accept is poor service. For instance, feeling that they are not front and center of the relationship. Feeling they are a statistic. Feeling like the financial advice they are getting or the way they are getting it is generic or ill-matched to them.

When advisors start to deploy technology which delivers a great experience for their clients, then and only then will they gain a competitive edge and restore broken trust.

The use of application programming interfaces (APIs) is presenting a new and exciting range of possibilities to financial advisors. Essentially, APIs act as a sort of plug in, bringing a specific functionality to other, already up and running systems, so an advisor, group of advisors or small or large organization can add bells and whistles to a system without having to invent/reinvent their own.

Such an API can permit the flow of information between applications and give financial advisors the ability to, in this circumstance, easily access on a real-time basis client data, gain insights and offer innovative solutions tailored to the clients’ life plans while complying with regulatory requirements

Through the magic of APIs, “behavior tech” platforms can now be white-labeled and inserted inside organizations so that they can access scalable and easy-to-use online behavioral management solutions to know, engage and grow every client (and their advisor!).

APIs like this are not tomorrow’s solutions. They exist now, waiting only to be embraced and leveraged. This is the power – here and now – to use behavioral insights to create truly unique and robust experiences for advisors and clients. It engages clients in a way that demonstrates the degree to which advisors will go to enhance the financial planning experience – and the success they can have with and for a client.

Every financial advisor should be able to use interactive business intelligence tools to drill down into client information. In advance of every meeting or phone call the advisor should, at the click of a button, be able to deploy dashboards and personalized information to respond to client needs. This approach can and will create an experience tailored to individual clients’ needs.

Clients and advisors alike want “easy” and they’ve got it if the right API or behavior tech solution is deployed. Everything is right there on their mobile devices.

How to Become a Behaviorally Smart Advisor

How to Become a Behaviorally Smart Advisor

The financial services industry needs new business models ones that help re-define what a financial advisor is capable of beyond just a numbers oriented investment orientation. The traditional twenty-five year + model of providing investment access and selection is being disrupted by technology and new players coming from other industries. The friction from this evolving operating environment seems to be leading to exploring more holistic and new client-focused experiences that create more engagement and deeper connections.

The Institute for Innovation Development, to explore this further, recently talked with Leon Morales, Managing Director of DNA Behavior International a behavioral finance technology platform designed for financial advisors to Know, Engage and Grow their relationships with their clients and prospects. We discussed the evolving nature and changing value proposition of financial advisors into this more holistic model with advisors serving as client behavioral coaches and mentors.

Hortz: You have frequently quoted from the Spring 2000 Journal of Investing article that states 93.6% of the financial planning process is the behavioral management of clients. We have always understood that being an advisor is, bottom-line, a relationship business but, what does that number tell us about the true nature of the financial advisor role

Morales: All the studies and resulting data that have looked at the issue appear to agree, that client behavioral management is one of, if not the, most important function of financial advisors. Understanding the clients communication style, personality, emotions and fears, these need to be mastered and managed by the advisor. Learning practical ways to understand the individuality of clients, how they make decisions and what triggers their emotions, are key to being able to guide the client over the longer term successfully, coaching them to truly achieve financial goals. What this points to is the ultimate importance of advisors being behavioral managers as much as they are technical managers of investments.

Hortz:What do you recommend as the key steps advisors must take to start strengthening their behavioral IQ and behavioral management skills with clients?

Morales: The most important step required for moving from the traditional financial advisor role to that of a Wealth Mentor is to learn first how to ask much better questions of the client. This enhanced discussion builds greater client relationships and opens the dialogue to reveal core behaviors, biases, reactions under pressure and other issues. Part of our Certified Wealth Mentor program’s takeaways is a list of many key conversation opener questions, used for client meetings. Further, the questions will encourage the clients to probe their own thinking. The advisor then gains insight into how the client makes decisions, the client’s reaction to taking a new direction, or confirmation they are on the right path.

Together with insights from our behavioral reports, this enables the advisor to identify points of alignment between what’s stated in the report, versus what clients are saying. This comparison enables the advisor to zero in on the clients areas of strengths and struggles and narrows down the tension between processes and behaviors that might get in the way of delivering outcomes. This kind of client connection, using our very concrete system, builds long term advisor/client relationships and advisors will know how to manage client bias and reaction under pressure.

Hortz: What are some predictable insights you can discover about your clients

Morales: Our DNA Discovery process delivers insights in several key areas:

  • Communication- -enables advisors to connect and work with the client on their terms
  • Biases – – awareness of assumptions or mental habits that need managing
  • Spending patterns –uncovers money habits that may impact investment strategies and outcomes
  • Risk tolerance and reaction to market movement- provides detailed behavioral insight into the client’s natural risk tolerance and risk propensity

Hortz: Can you walk us through your claim that a behavioral approach, using your wealth management platform, results in 99.5% client solution suitability and additional client value

Morales: The use of the Financial DNA behavioral approach enables the advisor to more deeply engage with their clients. Asking the right questions, and having a robust discovery process that more rigorously breaks down all the elements that make up risk, to a much tighter client discussion, reveals how much risk really needs to be taken, how much risk could financially be taken, and blending learned behavior and natural behavior to cover the right level of risk. Behaviorally smart advisors -who manage these conversations with the client well – will get a much higher level of suitability in what they recommend and what gets deployed or purchased in the end.

Dalbar research shows that 7.45% a year is the potential loss because of investors not having an advisor and making poor decisions. There is safety for clients in having a behaviorally smart wealth mentor manage their portfolio, rather than trading their own accounts. This goes back to the risk profiling where we believe we can get to 99.5% clients solution suitability. Therefore, 91% reflects accuracy from the DNA Natural Behavior Discovery and the other 8.5% comes from the learned behavior discovery.

Hortz: Do you see an evolution in what a financial advisor’s core job is and how they will be perceived in the future?

Morales: Yes. I believe that the advisor needs to become a guide for life for the client and to be able to navigate all the issues clients might face. When the client sees the advisor as their go to person for help with decisions, a trusted collaborator, that not only impacts their financial and investment world, but also life decisions and choices, all of which are foundational and have financial consequences. This kind of advisor-client relationship opens wider conversations regarding family dynamics. Advisors need to be the family advisor, and that’s going to be a big area for them in the future. To do that, they need to broaden their skills to handle a wider range of areas, or at least be able to communicate about them.

Importantly, a core adjustment required is the change from client meetings to client conversations. The word conversation makes the advisor/client engagement process easier, less formal, more likely to deliver open discussions. This adjustment is the process we have been bringing in to some of the firms we have worked with recently.

Hortz: How do you help advisors change their habits and ways of doing business to help them evolve into this new advisor business model

Morales: While education and our Certified Wealth Mentor Program are an important part of the process, a key strategy for DNA Behavior International, in order to help advisors make this happen, is to embrace our role as a behavioral Fintech company. We can now take our behavioral tools, processes and knowledge and embed that into their practices through an easy, accessible, online behavioral platform which provides them with practical and scalable behavioral intelligence across every client and firm employee. They would have readily available behavioral awareness, using our built-in discovery processes, and real-time behavioral management capabilities using our apps. Behavioral management can now be infused into the DNA of the firm.

Hortz: Tell us a little about your steadily growing list of strategic partners (BrilliantFIT, AMP) and how you work with them in extending your behavioral platform and resources to equally support advisors, clients, and other key financial services vendor firms

Morales: We have a wide range of technology integration able to be deployed, not just in the financial services arena, but across many disciplines and industries. With Financial DNA, we are a leader in the deployment of personality and behavioral based tools, but we also have such relationships as our hiring partner Brilliant Fit, based in Melbourne, Australia. They are making inroads by integrating behavioral discovery to the filtering of candidates for management roles and ongoing career development.

We built an alignment with Salesforce, so DNA insights are on the Salesforce platform. We are also currently working with firms on matching advisors to clients based on personality styles. We work with big data to open a significant access to leads by building algorithms to be able to link that data to personalities. We are working with a range of financial planning software groups globally using our behavioral chip strategy to power the behavioral management of the client experience.

Hortz: From your perspective in building to and working with a wide cross-section of financial advisors, what is your best advice for advisors in how to navigate this changing business environment in which they are now operating?

Morales: From my perspective, the first key point would be for advisors to develop their emotional intelligence (EQ). Personal development will make them more effective advisors as they interact with a wider range of clients. Maturing professionally in this way will make them a better advisor in guiding others through life challenges again, an expansion of their roles beyond financial guidance. This approach is what will lead to sustainability of the relationship.

Also vitally important are building more processes inside their businesses, particularly around technology, to enable a customized experience to be delivered. Introducing good technology releases advisors to build business and identify gaps where they need to hire and develop good teams.

A further key area is looking at existing revenue models. The current approach needs to be reviewed considering the changing role of advisors with the ability of advisors to become behavioral coaches to their clients. Knowing the importance of behavioral management, advisors can use these behavioral insights to look at how they make their money.

Delivering goals-based financial planning means advisors need to look at how they bring in a retainer fee for working with the clients on an ongoing basis. The new revenue model needs to reflect: running the annual meetings, helping the clients work out their goals, navigating difficult decision-making situations and transitions. Price points can be reviewed, as they add value through mentoring- coaching clients on how to manage their behaviors towards their goals.

Ill leave advisors with one of the favorite quotes of our founder, Hugh Massie: Strict rationality kills culture and relationships, and unmanaged emotions destroy wealth. Financial advisors will be well served to be able to deeply engage and reconcile client thinking and behavior with that clients life and wealth goals.

Written by Bill Hortz, Founder & Dean, Institute for Innovation Development

The Institute for Innovation Development is an educational and business development catalyst for growth-oriented financial advisors and financial services firms determined to lead their businesses in an operating environment of accelerating business and cultural change. We position our members with the necessary ongoing innovation resources and best practices to drive and facilitate their next-generation growth, differentiation and unique community engagement strategies. The institute was launched with the support and foresight of our founding sponsors – Pershing, Voya Financial, Ultimus Fund Solutions, Fidelity, and Charter Financial Publishing (publisher of Financial Advisor and Private Wealth magazines). For more information click here .

APIFest2

One Way a DNA Solution Plays a Role in an Organization’s Big Picture

I was lucky to be part of the team representing DNA Behavior International at a recent 24-hour event in which teams competed to prototype technology for PNC Banks Asset Management Group. We were there alongside other API (application program interfaces) solutions vendors including Microsoft, IBM, and Envestnet Yodlee.

The competition was a great opportunity to showcase how our data and tech solutions serve as a crucial facet – akin to a computer chip – for larger projects. So, while some of our clients and partners know us as a stand-alone solution, it was fun to see a wide array of really smart people – all PNC Bank employees with a variety of skills, including designers, developers, product managers, project managers, business analysts, and marketers – use the fintech API from us and from many other impressive vendors to design, build and pitch their solutions to a panel of judges.

The three use cases participants chose from were Creating a value exchange for financial planning, Prepare the next generation for wealth, and Deliver content as service. Seventy-five participants on 12 teams convened Sept. 27-28 in Pittsburgh for Triple Crown APIFest: Wealth Management’s Winners Circle, competing for cash prizes, bragging rights and the possibility of seeing their ideas put into production. The teams participating in the 24-hour event were selected from a series of judged rounds and design/review hurdles over the past month.

The intensity of the focused, 24-hour competition drove some especially creative ideas and approaches. It is inspiring.

We are proud and a bit humbled that five of the 12 teams used Financial DNA’s API product in their apps. Ultimately, three of the apps integrated with Financial DNA were chosen among the top five of the event. (These using the DNA chip place third, fourth, and fifth.) Businesses worldwide already use our API to win, so it was fun to see so many talented pros create their own wins with one of our core products.

And, as you might guess, a busy, round-the-clock event like this comes with some aspects you’re not likely to see in a more standard work event: 4,800 pounds of food was consumed, along with 720 cups of coffee, 216 Red Bulls and 900 bottles of water. And seven of the teams pulled an all-nighter.

All told, it was a win-win. All of the vendors API solutions inspired the teams and those teams, in turn, inspired us to think beyond our current solutions. What application or partnership is next on our DNA solutions agenda?

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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.

Big_data

Fill Big Data’s Big Gap

The explosion of available information from social media, together with significant techniques for capturing this data, now provides financial advisors with a gold mine of information to help them identify and connect with clients.

Big Data gathering is only a starting point in terms of capturing user behavior. It delivers a glimpse of the client but leaves a significant gap and won’t offer enough insight to be able to advise or offer solutions to clients based upon their life goals.

DNA Behavior International fills the gap. With the use of behavioral psychological insights, revealed through a validated questionnaire, their powerful DNA behavioral intelligence, partnered with their Big Data Optimization program enriches firms employee and client data.

IBM in their Big Data and Analytics Hub ask these questions: Are you (financial advisor) generating targeted personalized offers for your clients? Do you know your customers and provide them with timely, relevant and optimized offers based on data-driven insights? By leveraging information about your clients’ behaviors, needs, and preferences, you can encourage high response rates from clients and enhanced relationships with them.

Client Insight for Wealth Management

When financial advisors use Big Data to enhance their service offering – what are they extracting from the data? How are they interpreting it? What is it saying about potential clients? Will clients be concerned that they are being advised based on their social media accounts alone?

Financial advisors who mine social media to serve client’s life events should know this does not reveal personality or bias. It doesn’t uncover decision making styles. It won’t predict a reaction to market mood. It won’t reveal influencing life events.

Advisors who are behaviorally smart understand there is a gap in Big Data mining. They know the importance of guiding clients with wisdom to self-discover who they are and their priorities to achieve financial wholeness. Financial DNA discovery delivers this self-discovery process. This strong, validated, structured approach reveals all dimensions of a client’s financial personality.
A partnership between behavioral analytics that reveal personality and big data offers financial advisors a significant key to identifying clients and delivering accurate advice.

As quickly as Big Data mining was the key to understanding customers now the added requirement is for financial advisors to be able to use cognitive and analytics to understand their clients.

 

Hugh Massie

 

Gauthier Vincent head of Deloitte’s US Wealth management consulting business is quoted in the Financial Times: Tools that help manage interactions with clients will soon be able to analyze data such as a client’s social media activity to work out their investment goals and advisers are thinking. There’s a lot of info out there I would love to have to create rich profiles of prospects so I can increase the odds of success when I [contact] them.

Well said – but Big Data will only ever become a significant tool for financial advisors when it shares its platform with a financial personality discovery process such as Financial DNA.

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