Over the years, client expectations of financial advice have risen substantially, which is hardly surprising given the rampant mis-selling scandals in the recent past.
In full awareness of this reality, Austrian behavioural finance psychologist Thomas Oberlechner and his colleagues have developed a new software called BQ Advisory, which is specifically designed to capture personality and risk-preference factors, amongst others, in order to provide a significantly more effective and mutually beneficial advisory process than far too many that we have all encountered so far.
Indeed, this psychologist even wrote a monograph on the lamentable ethics he has encountered in the financial services industry, and the current project is an attempt to improve the situation.
According to Oberlechner, this software exposes various facets of client behaviour and preferences in a completely new manner.
At the click of a mouse, it reveals knowledge and information on how to best advise investors in a tailor-made fashion. What expectations do they have, what are they really willing to risk and how well do they understand what they are getting? Finally, how does this all evolve and change over time?
The software aims to deal with far more than just appetite for risk and the appropriate asset allocation. It goes beyond these classic fundamentals to consider in a transparent manner, the personal style, decision-making and objectives of the investor, and how to integrate these psychological factors into successful and suitable advice.
Advisers, explains Oberlechner, often do understand their clients intuitively, but not with sufficient differentiation, often lapsing into standard models or into their view of what is best for the buyer, and at worst, best for the seller. This can lead to poor communication, lost opportunities and even lost capital.
The software can also be used to predict likely client behaviour in the future. Up front, investors may believe that they can mentally handle market volatility and losses, but when this actually happens, they panic, fail to cope psychologically and suffer severe distress.
This can even lead to frantic sales at the worst possible time. Accordingly, a programme that can adapt a portfolio to such vulnerable clients, can work wonders for both them and for the adviser by preventing dissatisfaction, losses and damages claims.
As a former university professor, Oberlechner devoted years to studying investor psychology and came up with the idea of producing software that integrates the latest findings from behavioural finance, decision psychology and that of personality. The development of this tool involved joint research with such renowned universities as Harvard and MIT, as well as large numbers of professionals from Wall Street.
The software is certainly efficient – within a few minutes, the adviser can check out any changes relating to the client. These changes may refer to client expectations of advisory support, satisfaction with their current financial situation, and crucially, their satisfaction with the adviser.
