Financial advisors are seldom psychologists too, but Barclays Wealth has created a fascinating tool to help its FAs gain deep insight into the financial personalities of the firm’s ultra-high-net worth clients and prospects.
The 36-question Financial Personality Assessment serves as both a structured conversation-starter and the basis for tailoring portfolios to meet investment objectives.
Scoring six traits — on a scale of “strongly agree” to “strongly disagree” — relative to the population as a whole, the assessment then explores personal implications. The test was developed by a team of Ph.D. behavioral finance specialists and measures attitudes such as risk tolerance, short-term sensitivity to volatility, comfort with investing in financial markets, perceived financial expertise and desire to delegate investment decisions.
The profile created is meant largely as a first-step guideline for Barclays roughly 250 U.S. advisors to make broad portfolio-allocation suggestions.
Rather than investing in the market, many clients, based on emotions, expose themselves to excessive risk by over-allocating funds to personal holdings and investments such as a business ownership, Barclays says.
“When [advisors] speak to clients about their approach to investing, often certain aspects of their financial personality don’t come to light. This tool extracts that information so we can understand better how to best meet clients’ investment objectives,” says Michael J. Liersch, vice president, behavioral finance and investment philosophy, Americas.
Of particular interest to FAs: The assessment reveals how clients want to structure the advisor-client relationship. This is measured, for example, by a question on “perceived financial expertise.”
Introduced here last year after nearly two years’ implementation in the U.K., the assessment has been “immensely helpful in driving a structured conversation and helping clients better understand themselves when it comes to rational investment objectives and goals,” Liersch says. A total of six thousand tests have been administered so far.
In customizing diversified portfolios, “we use the score on risk tolerance — and the client’s wealth situation — to help inform the type of portfolio across nine asset classes, including fixed income, equities, alternative investments and commodities,” says Joseph Dursi, vice president-head of portfolio consulting and wealth management reporting consulting.
Using the Assessment
Barclays investment representatives receive extensive training in how to give the test. “They go into a deep dive to understand this process, the logic behind it and how it was developed,” Liersch says.
One prospective client exhibited high risk tolerance and intense sensitivity to month-to-month gains and losses. Freaked by a volatile market, he would quickly exit higher-risk investments that dropped in value, a move that, in the past, reduced returns. Barclays recommended a diversified portfolio and use of smoothing to limit short-term losses. That way, though the man sacrificed some upside, he gained some peace of mind.
“Most clients aren’t surprised with the results of their questionnaires,” Liersch says. “This shows that our three years of research were successful. An FPA can help start a conversation because people feel comfortable that the results are accurate.”
Test-takers are told: “Give your intuitive natural response,” and “some questions are deliberately ambiguous or emotive to create a strong reaction…”
More than 1,200 combinations of traits can show up in the assessment results.
Editor's note: In a separate online piece, Jane Wollman Rusoff takes the financial personality assessment.