Session 18, Practical Application of Behavioral Finance. Moderator: Dan dibartolomeo. Presenters: Mike Ervolini Hugh Massie

Transcription

1 Session 18, Practical Application of Behavioral Finance Moderator: Dan dibartolomeo Presenters: Mike Ervolini Hugh Massie

2 Goofy Decisions 2016 Cabot Research

3 Motivated Reasoning Pleasure and pain Splitting emotions 2016 Cabot Research 2

4 The Unconscious More than 95% Automatic 2016 Cabot Research 3

5 Survival Fight or flight 2016 Cabot Research 4

6 Modernity Bad habits Biased thinking Behavioral tendencies 2016 Cabot Research 5

7 2016 Cabot Research 6

8 The Practical Application of Behavioral Finance How Advisors can use a Behavioral Finance Platform to Serve Retail Investors 1

9 Clients Will React Differently to the Same Market and Life Events 2

10 Investor Emotions Drives Investment Returns Making Behaviorally SMART Decisions Investor Emotions Market Returns Investor Performance Advisor and Client Behavioral Management 3

11 The Science Behind the Swiss Watch Financial DNA Systems Forced Choice Assessment Measuring 64 Behavioral Traits 60+ Man Years of Development Invested Since 2001 Independent Validation by Team with 100+ Years of Experience Powerful and Unique Client Centered Behavioral Solutions Delivered in 123+ Countries and 11 Languages

12 Financial DNA Financial DNA = Financial Personality Advisor Client Communication Financial Personality Risk Profile Goals and Behavioral Biases 5

13 Our Competition Leaves you in the Dark Your ideal client How to Communicate , Phone, or Meeting? + more Risk Profile Hard Wired Behavior Goals Loss Aversion Pattern Bias Newness Bias Over Confidence + more 6

14 Behavioral Management Portfolio or Behavioral Management? 93.6% of financial planning is Behavioral Management personality style emotions passions excitement listening fear optimism reaction 93.6% 6.4% anxiety past experience Communication preferences speculation confidence opportunism Investments Source: The 93.6% Question of Financial Advisors, Meir Statman,

15 Behavioral Approach Value Proposition of a Behavioral Approach Client Value: 150bps 1 per year on AUM Firm ROI Value: 50x 2 ++ from increased referrals, retention and share of wallet Sources: (1)The Advisors Alpha: Putting a Value on Your Value, Vanguard 2015 (2) Modelling based on Schwab RIA Survey 2015, Advisor Impact UK Research

16 A Quicker and More Reliable Method to Predict How Your Clients Will React to Market and Life Events CDNA 12 Questions (2 to 5 Mins) FDNA 46 Questions (15 to 20 Mins)

17 Re-Positioning the Discovery Starting Point to Natural DNA Hard Wired Behavior Skills Knowledge Experiences Environments Financial DNA Natural Behavior Discovery Financial Personality Discovery: Situational Learned Behavior Behavior Gap Document, Monitor, Communicate, Educate Behavior Gap Instinctive Automatic, Go To Style Skills Knowledge Experiences Environments The Unique DNA Starting Point for Enhanced Predictability Financial Personality Discovery: Situational Learned Behavior Document, Monitor, Communicate, Educate

18 Communication Re-Framing Communication Assists Strategy Adoption Copyright 2001 Universal Press Syndicate 11

19 Communication Advisor Client Communication Goal-Setting Opportunities & Options Lifestyle Engagement, Openness & Making Connections Analysis & Tangible Information Soft tone & Safety Stability 12

20 Customized Communications and Unique Style Matrix Including Behavioral Biases and Natural Behavior Consolidated View Over Trading Optimism Bias Risk Taker Fast Paced Spender Herd Follower Instinctive Status Quo Results Orientated Relationship Orientated Saver Mental Accounting Pattern Bias Benchmark Focus Moves Carefully Risk Aversion Loss Aversion Fear of Regret Disposition Effect 13

21 Financial DNA Reports Financial DNA Reports Financial Personality Insights 14

22 Frank Butler: Natural Optimism Bias vs Learned Loss Aversion Frank s prefers to invest in Group 3 Conservative Frank Butler Initiator Pioneering Goal Driver Optimism Bias Risk Behavior Gap Learned Risk Behavior Learned Loss Aversion driven by: Not investment educated Negative market perception Negative family event Natural Risk Behavior Natural Optimism Bias triggers: Setting competitive goals Launch new initiatives Sacrifice balanced life 15

23 Investment Portfolio Building Frank s Investment Portfolio After a Wealth Mentoring Conversation the Advisor and Frank agree to start investing at Group 3 with 20% at Group 5, gradually increasing the portfolio risk level Close Risk Behavior Gap Manage Expectations Frank Initiator Navigate strong desire for returns Address goals 16

24 Quality Life Behavioral Attitudes for Purpose Based Planning 17

25 Additional Key Financial DNA Summary Report Components DNA Ultimate Performance Guide Advisor and Client Compatibility Matrix 18

26 How Will You Manage Client Emotions in Volatile Markets?

27 Market Mood Firm Dashboard for Building a Market Volatility Plan

28 How Will You Manage Client Emotions in Volatile Markets? 21

29 Building the Plan and IPS Summary of Clients Selected Portfolio Risk Aligned to Goals, Capacity Connecting the client s risk taking behavior to their goals and financial capacity on a continuous basis

30 Navigate Couple Differences Frank and Mary Butler 23

31 Financial DNA How Advisors are Using Financial DNA Advisor s Custom URL for CDNA/ FDNA Completion DNA Data available real time in CRM and Financial Planning Software CDNA and FDNA Natural Behavior Reports Available to advisors: Client / Prospect Completes CDNA and FDNA through the Advisor s Custom URL DNA Behavior System Behavioral IPS: Advisor/Team Sees DNA Insights and Scripts to Customize Interactions for Increasing Client Engagement Review Data to Monitor Suitability Compliance 24

32 Contact Us For more information about Financial DNA and to complete a trial: Contact: DNA Behavior International 5901-A Peachtree Dunwoody Rd Suite 375 Atlanta, GA (770) inquiries@dnabehavior.com ` 25