Hortz: Can you share with us further about other key research which forms the base of your methodology and allows you to characterize it as “the world’s most reliable process” to reveal and engage clients?
Morales: Our proprietary Financial DNA Discovery Process has been developed and independently validated since 2001 by a highly qualified team with over 100 years of combined academic and practical behavioral discovery instrument development experience. Furthermore, DNA Behavior International has invested more than 60 years in the design of these systems and its programs.
To ensure a reliable prediction of behavior, the Forced Choice Scoring Model is the basis for Financial DNA Natural Behavior Discovery which is the first step in discovering the complete financial personality. It solves for dangerous voids in traditional risk profiling. Our view is that most of the traditional risk profiles use situational based questions, that is, the client could respond to the questions differently depending on any one (or a combination of) market or personal events, attitudes, feelings, perceptions or education. Our methodologies go deeper into a more instinctive, automatic, hard-wired “Level 1” decision-making behavior. Daniel Kahneman the psychologist known for his extensive work in behavioral finance and decision making, details this "Level 1" automatic decision-making area in our brains as, when we are under pressure, where our "hard-wired" instincts will drive decision-making. So unless a client’s “Level 1” behavioral style is known, it is impossible to build a long-term portfolio, as it will be emotionally incompatible. So the questionnaire has to be designed to uncover this Level 1 behavior - free from personal or situational bias. The Financial DNA Discovery provides this Know Your Customer insight, and the validated results are accurate and constant over time.
It’s also important to understand that risk tolerance is only one dimension of a client's financial personality, and in fact, there are multiple elements of an investor’s overall "risk profile." There are several other behavioral finance factors necessary to fully understand the decision-making biases of both the client and advisor. Not communicating these biases only creates more risk -- to the client/advisor relationship, decision-making, goal-setting and overall compliance. So, the risk discussion is not complete without knowing the client’s full set of behavioral biases and knowing how to communicate on the client’s terms.
Hortz: Besides having clients fill out the Financial DNA Natural Behavior questionnaire, you suggest that the advisor does so as well. What benefits does that provide the advisor?
Morales: When an advisor is aware of their own bias, they are better able to offer advice that is in the best interests of the investor, in a fiduciary fashion. This client first approach is an increasing concern to financial regulators. With both client and advisor completing and sharing the Natural behavior discovery, it closes the knowledge gap between advisor/client.
Hortz: Tell us about your Certified Wealth Mentor training and how it differs from other advisor training programs?
Morales: Our Certified Wealth Mentor training program prepares advisors to become more equipped to guide and behaviorally manage the client on through the integrated ups and downs of the life and wealth creation journey. It teaches them to know, engage and grow different clients enabling them to deliver customized lifelong financial planning experiences for sustainable Financial Planning Performance. The DNA Behavioral training methodology is proven to enhance advisors ability to more confidently advise, mentor and coach clients to make improved life, financial and investment decisions based on their purpose. Further, our highly structured and tangible Financial Planning Performance Planning Process provides the platform for enabling advisors to charge higher retainer based advisory fees and increase profitability on a sustainable basis.
Hortz: What best advice would you give advisors in how best to work with clients in a fiduciary environment?
Morales: All human beings have a financial personality which includes emotions that can erupt both positively and negatively when dealing with money. These emotions can manifest as over exuberance or fear. Both client and advisor need to understand the behavioral responses driving decision making. Without this mutual insight, every outcome of the financial planning process becomes a potential complaint. Identifying each person's financial personality regarding how that drives decision making, will reduce costly complaints.