Practice Management

How can you screen your prospects to avoid potential “troublemakers”? How do you quickly identify at-risk clients to reach out proactively?

The best way is to combine behavioral finance with risk analytics.

The Behavioral Lens

Behavior-wise, some behavioral patterns raise red flags. For example, trend followers tend to panic when market goes down. They also tend to expect you to time the market to beat the index.

Doctors and engineers have strong analytical skills but at the same time tend to overestimate their knowledge in finance and investing. The more one knows about finance, the more realistic their expectations are, hence the importance to help clients see their limitations, and help them learn and grow as investors.

The Analytical Lens

When market goes down, we should also monitor which portfolios are impacted the most.

On this risk-return chart, each green dot represents a client portfolio. Focus your attention on the lower right corner, indicating higher risks and lower returns.

During market turmoil, it helps to look at the chart above for a relatively short time horizon, for example, 1-month or 3-month, to get a sense of which clients are impacted most.

When Behavioral Finance Meets Analytics

Combining risk analytics with behavioral patterns, you will be able to prioritize which ones to reach out to first.


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