A new wealth management tech provider aims to improve the suggestions advisors make to their clients by incorporating more robust behavioral finance profiling tools into their client discovery process.
Advisor Software, a wealth management cloud solution, believes current risk assessment tools are broken and give advisors and their clients flawed results. The firm on Tuesday announced the launch of Behavioral IQ, a profiling tool that walks investors through six behavior modules designed to give them a more accurate risk score than traditional risk tolerance surveys.
“The current psychometric risk assessment landscape for wealth management is broken. These tests have a high probability of producing flawed results, which can ultimately lead to a wrong investment strategy that could have disastrous outcomes,” Dr. Andrew Rudd, Chairman and CEO of Advisor Software, said in a statement. “A more in-depth understanding of client risk and client decision-making is crucial in order for financial advisors to provide accurate advice and ensure that they are closely aligned with their clients’ needs and goals.”
Clients take the test on their own time and receive a report that breaks down where they sit on a spectrum for the six behavioral factors, including confidence, loss aversion, financial knowledge, risk, decision approach and present bias.
On the back end, advisors can see all their clients’ results in a matrix and compare them to other behaviors to identify subsets; for example, clients who have low risk tolerance but are also overconfident.
The tool helps advisors create an actionable plan based on behavioral results as well as other factors like gender, age and marital status, according to Alex Zicman, enterprise business development manager, for Advisor Software.
Tom Flint, vice president of sales and business development for Advisor Software, added that “as far as possible, they’re revealed preferences rather than stated preferences. We’re not just taking people’s word about what they’re like, we’re actually putting them in some what-if scenarios.”
The tool was developed in partnership with Suitable Strategies, a financial behavior specialist based in London.
--- Read Behavioral Finance Is a Promising Alternative to MPT on ThinkAdvisor.