Advisors Fooled By Own Biases

Advisors Fooled By Own Biases

Some advisors have told me that they will not use a tool because of a warped belief they can read people better. The fact is, we all have personal blind spots and behavioral biases which stem from the overuse of our strengths. The right assessment process built with scientific foundations provides a huge amount of objectivity, which can help an advisor not fall into the trap of being fooled by their perception and own natural biases.

However, criticism of traditional risk questionnaires is right, as Carl Richards points out in his blog. The typical risk questionnaire is not inherently accurate and is relied upon without properly engaging the client. But if used as a starting point, success can be achieved by the advisor using it to engage the client in -a goals-based planning process.

With a reliability factor of 91% (and having been completed by over 800,000 people,) the Financial DNA Discovery Process is an independently-validated, psychometric assessment used to measure a person’s complete financial personality (including risk). So while basic, situational “questionnaires” should be out, scientifically validated processes which are accurate and engaging should ALWAYS be used so long as they are part of a more in-depth conversation.

The Ultimate Cheat Sheet On FINRA Firm Culture

The Ultimate Cheat Sheet On FINRA Firm Culture

It has been more than seven years since the financial crisis, yet some firms continue to have significant violations due to poor cultures of compliance, FINRA Chairman and Chief Executive Richard Ketchum said in a statement. This year,

FINRA will be looking for firms to focus on their culture and whether it is putting customers first and promoting risk management adaptable to a changing business environment, Mr. Ketchum said.

Recognizing that all of us have behavioral biases that are unique; building a firm culture can be one of the most important goals of the Financial Advisory Firm. Using People analytics to develop a client-centered solution breeds a culture of increased AUM without sacrificing integrity and authenticity of the firm goals.

This latest move comes after the Wall Street regulator listed firm culture as a 2016 examination priority. FINRA has defined culture as firm norms-those practices and behaviors within the workplace that have a “profound influence” on how firms run their business and manage conflicts.

FINRA is asking firms to provide information around eight general areas, including the polices in place that establish firm culture, how those core values are communicated and in what ways the firm measures and assesses the impact of those standards.

Does your firm have the culture to support FINRA’s top priority? Use these suggestions to develop your own “Cheat Sheet” to ensure you are proactive in meeting these objectives.

1. Use a validated Risk Profile Solution that assists the Advisor in identifying the best-suited investments that match the client’s natural risk tolerance and return requirements, thereby, reducing complaints later on when the client’s natural behavior surfaces and he/she reacts negatively.

2. Create a platform with transparency into those Risk Profile and Behavioral Bias factors for both the Advisor and the Client. This will provide documentation of an environment that is focused the true Client needs, as well as, how the Advisor might be biased differently than the Client. Identifying mismatches and performing periodic reviews of transactions based upon this information will ensure accountability for the Advisor not to place the client in a non-suited investment.

3. Develop a behavioral bias learning environment so that the Advisors understand how hard-wired behavior is a major factor in how the client will react to different investments and market volatility. This can be done by using a behavioral bias discovery process and engaging the client in the process to help manage their emotions and expectations.

Read More on what other leaders are doing to develop their firm culture.

Learn more about People Insights and how they can impact your Firm Culture.

BUSTED  - leadership doesnt have to be lonely1

BUSTED – Leadership Doesn’t Have To Be Lonely

Leaders set the tone and direction for engagement in the workplace. To do this effectively they need to identify their natural instinctive behavioral talents. These provide reliable predictors of how a person will consistently perform over the long term. Using their talents, making decisions with the least stress, and responding to changing life and work factors, is what their “go to” behavior is under pressure.

The 2015 Gallup study titled ‘State of the American Manager’ studied 2.5 million manager-led teams noted:

Companies that hire managers based on talent realize a 48% increase in profitability, a 22% increase in productivity, a 30% increase in employee engagement scores, a 17% increase in customer engagement scores and a 19% decrease in turnover. Source

Talent is defined as a special natural ability or aptitude; a capacity for achievement or success
The key word here is ‘natural’.

The majority of managers working in the U.S. today are wrong for their role. That’s not to say these people don’t have talent. On the contrary, their talent probably made them quite successful in their previous, non-managerial role. But the talent that makes someone a great salesperson, accountant or engineer is not the same talent that makes him or her a great manager. In fact, Gallup has found that only 10% of working people possess the talent to be a great manager. Source

The further up the hierarchical ladder a leader goes, the more likely a leader feels isolated and lonely. This is especially true if they believe the promotion is above their level of competency. This leads to poor decision making and even poorer communication. More worrisome is the belief by the isolated leader eventually believes that they are doing a great job!
In a recent survey the Plank Center at the University of Alabama and Heyman Associates, observed the following:

The perceptions of top leaders and followers. Top leaders rated their performance, trust, work engagement, job satisfaction and organizational culture significantly higher than followers at all levels. Things look different and far better at the top. Leaders may often rate their own performance higher than do followers, but the size of the gaps in the study is substantial. Leaders can reduce the gaps by 1) increasing power sharing, 2) strengthening two-way communications, and 3) enhancing interpersonal skills to enrich relationships and teamwork. Source

Leaders may indeed feel isolated and lonely, but the risk is that this creates an information vacuum around them, resulting in employees withholding important and sometimes unpleasant information.
Understanding a person’s inherent leadership style (we all have one) ensures that leaders understand the differences between times of reflection, feelings of isolation, sensations of loneliness and how to manage each state.

Mark Twain

Reflection: Some leaders need quiet time for reflection, planning, thought, and inspiration.
Isolation: Some leaders with a more engaging behavior are stimulated by conversation and connection, yet allow the position of leadership to cut them off from this ‘energy’.
Loneliness: Some leaders struggle with their leadership position having possibly enjoyed the ‘mateship’ of teams leading to loss, sadness and feelings of loneliness.

As human beings, we are not designed to live alone. We’re ultimately designed to need one another. The degree to which that need is met depends a lot on understanding inherent natural behavior. Without behavioral insight, individuals may never fully grasp how to be effective in leadership.

Using a discovery process, such as DNA Behavior,, natural talent can be revealed. This is our natural instinctive “hard-wired” behavior. Armed with this insight, leaders do not need to feel isolated or lonely. This knowledge will reveal not only their preferred operating style, but also provide signposts to the kind of support group necessary to ensure effective leadership.

Authentic leaders build close relationships with people who can counsel them in times of uncertainty. They engage in conversations with other leaders. And they continue to participate in executive education and management training programs.

As John Maxwell says:

Leadership is not about titles, positions, or flow charts. It is about one life influencing another.

The most effective cure’ for leadership isolation/loneliness is to understand your inherent behavior, communication approach, and talents so that you can be proud of your leadership legacy.

Robo 2.0

Robo 2.0, Your Torrid Behavioral Finance Fantasy Comes True

Yesterday, my friend shared a link to a new artificially intelligent personal assistant that can communicate independently with clients. Her name is Amy and she is superwoman compared to Siri. Unlike Siri, Amy can work independently, multi-task, make her own decisions and can even teach herself to emotionally connect with others based on their digital footprint. The scary thing is robots are having more engaging conversations over email than we are (talking about interests like the Atlanta Falcons, paddle boarding or the BCS Championship). This evolution will cause ripples in the financial services industry, hold advisors to higher engagement standards and dramatically shift the traditional advisor’s role. Are your ready for Robo 2.0?

The Financial Advisor will be held to higher client engagement standards with Robo 2.0 in order to remain valuable in the client’s eyes. Superficial conversations are “out” and deeper wealth mentoring relationships are “in.” Are you Robo 2.0 ready?

Robo 2.0

With “robots” entering Fintech with robo-advice platforms (Robo 1.0) our industry is going through a major shift. Are you prepared for the next round of enhancements? I am predicting that Robo 2.0 will bring an army of “Amys” to advisor’s offices handling all previously manual tasks like answering client email, booking appointments, superficial “checking in emails”, documenting client meetings, building portfolios and lead gen. Amys will assist in nearly every facet of financial planning except for the actual meeting with clients and managing their behavioral biases.

Many have speculated that an advisor’s role in the future will be akin to a pharmacist equipped with an automatic pill dispenser, a check and balance in the financial planning process. I disagree. This is inefficient and not the best use of advisor’s talents. In Robo 2.0, firms will review and prepare all portfolios centrally and deploy their advisors to be the firm’s face and voice. The advisors will be the shoulders to cry on during a death or divorce, a counselor for health and wealth, and a gladiator for the client’s goals. Robo 2.0 advisors will be pushed to non-traditional work hours to keep up with the demands of their clients and the reality of the 24/7 capabilities of their Amys and the diverse services being offered. Not all Robo 1.0 advisors are suited for 2.0.

Higher client engagement standards.

The main advantage that a robot has over the human is that they fully prepare before a meeting. In a research study, we recently completed, advisors will not emotionally engage 40% of prospective clients. The way that they approach them in their first interactions will be a complete turn off (whether it be too pushy, too salesy, or just a personality mismatch). Robo 2.0 platforms will be able to reduce this mismatch by drawing on data from, behavioral science, and demographic databases to know exactly to whom they are talking, their interests, their personality, their likely needs and key demographics and the ability to change their pitch accordingly.

In order to be competitive, advisors must emotionally connect to their clients, quicker and more reliably, by better understanding their financial personality and how to provide the type of personalized support each person needs.