People talk a lot about behavioral finance but don’t know how to use it systematically. We have figured it out.
Taking a modular approach, we break it down into a set of behavioral factors, such as investor type, behavioral biases and financial IQ, each independently assessed, giving you maximum flexibility.
All behavioral factors are then rolled up into a Behavioral Risk Index, a single number to indicate how likely the client will make irrational investment decisions during market turmoil. You can use it to prioritize and have better targeted conversations.
This page provides explanations and talking points to help you use it effectively with clients.
Best practices for using AccuProfile™
Follow the best practices below so you do not overwhelm clients during onboarding, while providing room for continued education and growth.
- We recommend to start with the Risk Tolerance Plus sequence, which includes the multi-dimensional risk tolerance assessments, and investor type.
- It takes 3-5 minutes to complete this sequence.
- If you offer multiple model set, specify the model set for this household before doing the Risk Tolerance Test.
- For clients of ages 65+, the next step is to do the Cognitive Ability Test.
- Position this as the best practice and a preventative measure, just like doctors order certain tests once you reach a certain age.
- For clients below 65, the next step is loss aversion. Having this awareness helps clients keep their emotions in perspective during market turmoil.
- If you offer ESG models, give the ESG questionnaire to clients to see if ESG models are appropriate for them.
Quick Links
Back to AccuProfile™
- Multi-dimensional Risk Tolerance Assessment
- From risk tolerance to proposal generation
- Investor Type
- Behavioral biases: Loss Aversion, Overconfidence, Herding
- Protecting aging clients: Cognitive Ability Test
- Financial IQ
- Describe Yourself
- Behavioral Risk Index
Investor Type
Adapted from the research from Dr. Andrew Lo from MIT, this mini questionnaire assigns each client an investor type, such as passive investor, trend follower and contrarian.
A client’s investor type has a major impact on the advisor-client relationship; hence it is part of the “Risk Tolerance Plus” flow, the first priority to give to clients.
Behavioral Biases
Investors are subject to behavioral biases such as loss aversion, overconfidence, and herding. Having this awareness help your clients keep their emotions in perspective. Assessing loss aversion should be the second priority as it causes excessive panic in investors during market turmoil.
Click on each link to learn more.
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