October 1, 2019 • George Yacik
Just because clients say they’re comfortable with a lot of risk in their portfolio doesn’t mean financial advisors should take them at their word. Indeed, countless studies have shown over the years that people often react irrationally and against their own self-interest when it comes to financial matters. One way financial planners can try to get around that is through psychometric or behavioral finance software that helps them discover the “core” person they’re dealing with, better understand and communicate with their clients, and in the end create a better financial plan for them. One of the oldest such systems, dating back to 1998, is FinaMetrica, now part of PlanPlus, a Toronto-based company that merged with FinaMetrica, an Australian firm, in 2017. “A good advisor has to understand objective issues, like how much money the client has and needs, but they also need to understand behavioral issues like risk tolerance and values,” says Shawn Brayman, founder and CEO of PlanPlus. “You have to find the right balance between the objective piece and the subjective behavioral pieces to really get the client in the place they want to be. “For an advisor this is really key,” he adds. “It’s more important than ever that advisors can demonstrate that the actions they are taking are in the best interest of the client. What advisors are really afraid of is if they get something wrong and the client drops them and moves their money to another advisor. So the better job you do in understanding the client and their goals, plus their risk tolerance and their values, you are much more likely to have a client who stays happy with you and engages with you, because they are invested in you and not just invested in the market. If a client’s goals are linked back to their core values, they are much more likely to stick to their plan and achieve their goals.” FinaMetrica has users in 35 countries. Its biggest market is in Canada, followed by the U.K. and the U.S. As part of the system’s onboarding process, the client is sent a link to a 25-question questionnaire, which asks things such as “How easily do you adapt when things go wrong financially?” “When faced with a major financial decision, are you more concerned about the possible losses or the possible gains?” The best practice is for the client to answer these questions alone without the advisor present and thus avoid the advisor’s bias. FinaMetrica comes in different versions that ask even more questions. The greater the number, the greater the reliability of the results, Brayman says, adding that most advisors use the “more robust” version. Ron Wilkinson, founding partner at Security First Advisors in Vancouver, Wash., has used FinaMetrica with more than 900 clients since 2002. “From my standpoint, there is an art and a science to financial planning, and I like to bring in as much science as I can,” he says. “FinaMetrica is head-and-shoulders above other software programs. We use more than one tool, but this is the bedrock that we use when onboarding clients.” Wilkinson’s firm uses it for recommending asset allocation in a client portfolio, but it’s also an important communication tool. “It allows me to talk about risk in relation to who the client is. That for me is the biggest piece,” he says. “It helps them understand where we are coming from and why we are recommending what we are based on an assessment of what seems to be an appropriate amount of risk for them. “Classic example: A client came to us with a 100% stock portfolio, yet his risk profile showed him to be less than 50%. We told him, ‘No wonder you can’t sleep at night. This is way outside your comfort zone for volatility.’ And he said, ‘Nobody’s ever shown me this before.’ I find that interesting because in the RIA/fiduciary world, risk profiles have been around a long time.” First « 1 2 3 » Next
Just because clients say they’re comfortable with a lot of risk in their portfolio doesn’t mean financial advisors should take them at their word. Indeed, countless studies have shown over the years that people often react irrationally and against their own self-interest when it comes to financial matters.
One way financial planners can try to get around that is through psychometric or behavioral finance software that helps them discover the “core” person they’re dealing with, better understand and communicate with their clients, and in the end create a better financial plan for them.
One of the oldest such systems, dating back to 1998, is FinaMetrica, now part of PlanPlus, a Toronto-based company that merged with FinaMetrica, an Australian firm, in 2017. “A good advisor has to understand objective issues, like how much money the client has and needs, but they also need to understand behavioral issues like risk tolerance and values,” says Shawn Brayman, founder and CEO of PlanPlus. “You have to find the right balance between the objective piece and the subjective behavioral pieces to really get the client in the place they want to be.
“For an advisor this is really key,” he adds. “It’s more important than ever that advisors can demonstrate that the actions they are taking are in the best interest of the client. What advisors are really afraid of is if they get something wrong and the client drops them and moves their money to another advisor. So the better job you do in understanding the client and their goals, plus their risk tolerance and their values, you are much more likely to have a client who stays happy with you and engages with you, because they are invested in you and not just invested in the market. If a client’s goals are linked back to their core values, they are much more likely to stick to their plan and achieve their goals.”
FinaMetrica has users in 35 countries. Its biggest market is in Canada, followed by the U.K. and the U.S. As part of the system’s onboarding process, the client is sent a link to a 25-question questionnaire, which asks things such as “How easily do you adapt when things go wrong financially?” “When faced with a major financial decision, are you more concerned about the possible losses or the possible gains?” The best practice is for the client to answer these questions alone without the advisor present and thus avoid the advisor’s bias.
FinaMetrica comes in different versions that ask even more questions. The greater the number, the greater the reliability of the results, Brayman says, adding that most advisors use the “more robust” version.
Ron Wilkinson, founding partner at Security First Advisors in Vancouver, Wash., has used FinaMetrica with more than 900 clients since 2002. “From my standpoint, there is an art and a science to financial planning, and I like to bring in as much science as I can,” he says. “FinaMetrica is head-and-shoulders above other software programs. We use more than one tool, but this is the bedrock that we use when onboarding clients.”
Wilkinson’s firm uses it for recommending asset allocation in a client portfolio, but it’s also an important communication tool. “It allows me to talk about risk in relation to who the client is. That for me is the biggest piece,” he says. “It helps them understand where we are coming from and why we are recommending what we are based on an assessment of what seems to be an appropriate amount of risk for them.
“Classic example: A client came to us with a 100% stock portfolio, yet his risk profile showed him to be less than 50%. We told him, ‘No wonder you can’t sleep at night. This is way outside your comfort zone for volatility.’ And he said, ‘Nobody’s ever shown me this before.’ I find that interesting because in the RIA/fiduciary world, risk profiles have been around a long time.”
Please log back in before proceeding.
There was an error logging in. Please try again.
Congrats! You are now logged in. Your exam is being submitted.