With the right tech stack, advisers can aggregate data from multiple feeds and flawlessly blend risk and financial planning programs into their platform, quickly digesting a detailed view of assets to manage client portfolios.
They can communicate through a range of digital channels, and with the advent of hyper-personalization tools, they can use data analysis and artificial intelligence technologies to create highly customized client experiences.
But are these capabilities only scratching the surface? What if advisers could connect to clients on a much deeper level, becoming indispensable guides who were able to change how they think about money? This behavioral finance technology is already here and with it, advisers can potentially redefine the client relationship.
Advisers know they can no longer compete on investment performance alone. Investors expect platforms to offer seamless service and multi-channel communication. And they expect advisers to manage their full cycle of financial wellness.
Financial wellness describes the state investors achieve when they incorporate the slate of healthy financial behaviors, such as reining in overspending, securing retirement funds and planning for emergencies. It is the state advisers seek to reach with investors.
Reaching financial wellness requires individual attention. For a three-dimensional understanding of each client, advisers need to go beyond traditional wealth management approaches to incorporate aspects of behavioral finance — considering the psychology behind investing to understand the relationship between beliefs and choices. Many do not realize, however, the extensive role a tech stack can play in achieving this goal.
We know clients have strong feelings about their wealth and investments. Working on this assumption, behavioral finance tools seek to isolate and address those feelings that may be slowing progress toward their goals.
They can shed light on how clients feel about their investments, including identifying beliefs and preferences that may be leading to irrational decision-making. They have vast potential to help clients reach better outcomes.
We know from behavioral finance research that excessive choice breeds inertia — or, that given many options, most people will choose no option. Advisers can counter this inertia for clients by narrowing their focus to one option, identifying only the next best step to take to work toward financial wellness through incremental steps.
With this hyper-personalized approach, an adviser might inform a younger investor about the need to reassess risk tolerance or a high-net-worth investor about the benefits of alternatives in an overall investment plan. Through a tech stack, we can seamlessly track these opportunities with data and analysis and recommend appropriate actions that result in long-term change.
We also know from research the many ways in which emotions and biases can overpower rational perspectives and decision making. Traditional economics envisions a logical thinker, while behavioral finance recognizes that investors are often plagued by a range of biases such as overconfidence, an overly strong aversion to loss, and the tendency to overvalue the initial information used to make a decision.
Raising these flags can position the adviser as a kind of financial therapist, affording them a more nuanced control over how their clients relate to money, whether releasing them from biases or introducing them to new thinking about assets. It means having a deep understanding of an investor’s personal and financial objectives, and of the obstacles they face in achieving them.
To become that reassuring voice, advisers also need to strike a cadence with each client, finding ways to learn their habits and isolate their triggers. They need to understand complexities from all angles and decide what will ultimately motivate that overly conservative or overly aggressive investor to change their attitude.
While we cannot usually eliminate biases, we can acknowledge them and help reconnect investors with the path toward their goals. We can use technology to help push boundaries and build trust in the adviser’s ability to serve as a financial guide.
Sarah Rasmuss is chief product officer for CircleBlack.
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