3 ways to increase efficiency in your wealth management firm using behavioural finance

December 14, 2023
Greg

Greg

Globally recognised expert in applied decision science, behavioural finance, and financial wellbeing, as well as a specialist in both the theory and practice of risk profiling. He started the banking world’s first behavioural finance team as Head of Behavioural-Quant Finance at Barclays, which he built and led for a decade from 2006.

3 ways to increase efficiency in your wealth management firm using behavioural finance

Not all increases in efficiency are created equal. The best are purposefully built around enhancing the investor experience, enriching adviser-client relationships, and automatically evidencing the process by which these are done.

No advisory firm seeks to be inefficient. Yet in our experience of working with firms from one-man bands to big banks and financial institutions, each struggles in some way with clunky processes and inconsistently implemented actions, often unnecessarily performed by people at the peak of the payscale.

Blending human and tech capabilities is an excellent way to root out inefficiencies, throughout the advisory process… when it’s done correctly.

The key is being clear about what humans do best, and what tech does best, and assigning tasks accordingly.

You want your most experienced human advisers to focus on judgment, interpretation, and presentation, in the context of an individual client relationship.

You want them kept away from repetitive, time-consuming, number-crunching tasks, especially those requiring continual monitoring, those that contain the highest risk of error or bias, and those where errors would prove most costly. Humans just aren’t very good at these things. Tech is.

Here are three ways to efficiently and effectively balance tech and human capabilities throughout the advisory process:

1. Use tech to get to the suitable answer more efficiently

A good suitability process – which robustly, reliably, and repeatedly matches an investor to the best investments for them – is grounded in quantitative and behavioural science. It’s not the adviser’s job to reinvent this science anew with each client. It’s their job to interpret it, and apply it.

Getting to the right answer involves a lot of background work. It needs to account for aspects both of what the investor owns (or will own) and who they are, that are known to be relevant to the right, suitable answer for what to do, right now, and throughout the investment journey. This takes time, and involves plugging a lot of numbers into a consistent process. It’s a job perfectly suited to tech.

Algorithms are frequently shown to be excellent diagnostic tools. This doesn’t make doctors redundant. It makes them more efficient.

2. Use tech to guide advisers to deploying their skills more efficiently

Tech can help advisers focus on the jobs they’re best suited for – expertly interpreting diagnoses in the wider context of a client relationship. It can also help guide their communication within those relationships.

Some advisers are innately good psychologists, or have become so through experience – either broadly with many clients, or deeply with a few clients many times. Some are not so innately good, or have yet to rack up the relevant experience. Some are generally excellent… but occasionally forgetful. All could be helped with behavioural tech. Even the best professional sportspeople employ coaches, especially in matters of the mind.

The two main uses of tech in enhancing the efficiency of advisers’ client-facing time are:

  1. Guidance for triaging communication: which clients to prioritise talking to in any given set of circumstances, e.g. market falls, or major life events, thus making more effective use of scarce advisor time.
  2. Guidance for how to talk to clients based on their individual psychological make-up: saying the right thing, at the right time, and in the right tone.

Clients are emotional humans with dramatically different potential responses to both investments and the communications that position them. Accounting for this – as any suitable advice must – is complex, especially at scale.

In addition, both advisers (in research we’ve undertaken) and regulators (in the Consumer Duty rules) agree that the need to understand investor behaviours and evidence that understanding is one of the most pressing areas of concern in financial advice.

Tech that assesses and analyses individual investor behavioural tendencies can both widely apply and accelerate the gaining of a type of understanding otherwise gained only through potentially years of experience, and even then only with a handful of clients. It can guide advisers towards not only which clients would benefit most from a particular communication, but also what to say to a given client, as well as when and how to say it for maximum impact.

Most digitalisation focuses on using better tech for slicker processing of investor information. This is clearly valuable. But it’s a poor second to using tech to enable

a better understanding of investors as individuals, and a better means of leveraging that understanding towards targeted behavioural interventions throughout each investment journey.

3. Use tech to make your compliance process more efficient… and bulletproof

Through a compliance Iens, the ideal suitability process:

  1. Ensures consistent, unbiased, decisions.
  2. Tracks all relevant parts, however fast they’re moving.
  3. Keeps reliable records, for a suitability process is only as good as you can evidence it to be.

Humans, even the most conscientious ones, with eyes devoted to the details, are ill-equipped to be particularly good at any of this.

See our research on ‘noise’ in financial advice to see just how ill-equipped some are.

Good tech can ensure your compliance process runs on autopilot, with automatic digital audit trails, and with a level of accuracy otherwise unobtainable.

Being efficient on purpose

In our deep reviews of client suitability systems, we regularly see jumbles of ‘solutions’ to isolated problems that fail to fit together to solve the one problem that really matters – matching investors to suitable investments.

From the faff of duplicative data entry to processes that seem to aim at getting their steps in rather than getting a client where they want to go, inefficiencies taint the client experience and dilute the richness of adviser-client interactions. Not to mention eat into the bottom line.

The main benefit of digitising more elements of the advice process isn’t in reducing the number of adviser-client interactions, but increasing the quality of them, by keeping them focused on the elements that require a human touch.

Technology is at the heart of making advice firms more efficient. How tech is used is every bit as important as what it’s used for. Tech should support intuitive knowledge grounded in a human relationship, not replace it… it should help you focus on the meaningful, not the merely mechanical. It should excel in its place… and help human advisers flourish in theirs.

To learn more about deploying an end-to-end digital client risk suitability solution in your financial advisory firm that supports you, your advisers, and your clients efficiently and effectively, you can download our Digital and Hybrid Advice Transformation Guide by clicking here.

Download the digital and hybrid advice transformation guide now.

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