AccuProfile®: Practical Behavioral Finance

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.

Follow the best practices below so you do not overwhelm clients during onboarding, while providing room for continued education and growth.

1. 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.
2. 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.
3. For clients below 65, the next step is loss aversion. Having this awareness helps clients keep their emotions in perspective during market turmoil.
4. If you offer ESG models, give the ESG questionnaire to clients to see if ESG models are appropriate for them.

Back to AccuProfile™

• Multi-dimensional Risk Tolerance Assessment
• From risk tolerance to proposal generation
• Investor Type
• Behavioral biases: Loss Aversion, Overconfidence, Herding
• Protecting baby boomer clients: Cognitive Ability Test
• Financial IQ
• Describe Yourself
• Behavioral Risk Index

Our award-winning risk tolerance assessment includes two components: a patent-pending Risk Tolerance Test that maps directly to one of your models, and a brief risk questionnaire to cross validate the result.

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.

It is important to put the protection in place for baby boomer clients, but it can be a sensitive conversation. This platform guides you through the steps and makes it part of the best practice.

For baby boomer clients, this should be the second priority.

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.

Successful people often overestimate their capabilities in other fields. Financial IQ is an objective assessment of clients’ knowledge in finance and investments. You will help them learn and grow as investors.

This is a quick way for investors to describe themselves along six dimensions.

Everything is rolled together into the Behavior Risk Index™, a single number of 1-10 that indicate the client’s behavioral risk when it comes to investments.

During market turmoil, you can use it to prioritize and customize your conversations.