Advisors as Fiduciaries: Client-Centered Solutions

www.financialdna.com

Advisors as FiduciariesClient-Centered Solutions

July 2016


DNA Behavior Behavioral Finance Leader

Leon Morales– Chief Relationship Officer

– Builder of successful people driven organizations. A deep conviction in organizational success; Cyclist & Runner LinkedIn http://ow.ly/JrHDB

Leon Morales

http://t.co/kR7l56rst4


1. How to Prove Acting as a Fiduciary

2. Investment Management Becoming Commodity

3. How to Differentiate Themselves and Show Value

4. Difficulty in Keeping Clients Truly Engaged

5. Managing their Own and Client Emotions

6. Tied to Old Ways and Habits of Operating

Challenges for Advisors Changing Industry Landscape


FINRA Rules 2090 + 2111

“Know Your Customer” and

“Suitability”

DOL Fiduciary Rule

“Your Clients Interests First”

Technical Regulatory Compliance

Current US Regulatory Environment Strengthening DOL Fiduciary Regulations

Know and Retain, Essential Facts…Reasonable Basis…Reasonable Diligence…Analyze Customer Specific Factors… Overall Quantitative

Suitability


“The New World” for Your Advisors as a FiduciaryHow They Will Put Clients at the Center of the Plan

Products Offerings Based on Persona Model Assumptions

Tailored Goals-Based Planning Using Financial Personality Insights

Customized Behavioral Coaching Powered by a FinTech Platform


What Advisors and Clients Do Based on Instinctive Behavior

What Advisors and Clients Should Do

Based on Rationality

Client-Centered

Communication

& Solutions

Behavioral

Biases &

Emotions

Managed

Behavioral Management Puts Clients Interests First Aligning Advisor Approach to Client Style


Value PropositionTangible Benefits of Behavioral Management


What Happens When Money Negatively Triggers Emotions?

Litigation Risk

Client Retention


Helping Clients Accomplish Goals Navigating Behavioral Finance Biases and Emotions

Know

• Who is the client?

• Up-front discover the client’s natural communication style, decision-making biases, risk, and goals

Engage

• How do you relationship manage the client?

• Communicate on the client’s terms to increase emotional connection

Grow

• What solutions do you offer the client, and How?

• Behavioral management by re-framing information, navigating decision biases and natural risk tolerance


Active Client Participation

to Boost Engagement

Active Behavioral

Management by Advisor

Customized Client First

Service Experience

The Next Gen Business Model Based on Direct Client Participation in Behavioral Discovery


Financial DNA® = Financial Personality

Advisor Client Communication

Behavioral Biases

FinancialPersonality

Risk Profile


Quicker and 91% More Reliable Method to Predict Reactions to Market / Life Events

Financial DNA – 46 Questions (15 to 20 Mins)


DNA Behavioral Management Guide ReportHelps Advisors Guide Clients to the Right Solutions

Report provides:1. Behavioral differences between client and advisor2. Guidance for the advisor to adapt their style to the client3. Financial behavior biases and risk reporting4. Client engagement meeting process and questions – relationship, financial

and investment behaviors5. Behavioral IPS – aligning goals, financial capacity and risk-taking behaviors


Your Assessment of the Client’s Current Portfolio Risk Group

Your Assessment of the Client’s Portfolio Risk Group Needed to Achieve Goals

Your Assessment of the Client’s Portfolio Risk Group based on Current Financial Capacity

Financial DNA Natural Behavior Portfolio Risk Group (From Financial DNA Discovery Process)

Your Assessment of the Client’s Portfolio Group based on Learned Risk Behavior Motivations

Overall Selected Portfolio Risk Group (Selected by You)

Building the Plan and IPS – Summary of Clients Selected Portfolio Risk Aligned to Goals, Capacity


Re-Framing Information Minimize Risk of Miscommunication

Copyright © 2001 Universal Press Syndicate


Team With

Lack of

Behavioral

Insight

?

? ?

?

Default Styles

=1 in 4

Engagement and

High Compliance

Risk

Matching

Employees and

Clients for 4 in 4

Engagement and

Compliance

23% Revenue

Uplift and Brand

Protection

Ensure Your Message is Heard and UnderstoodClient-Centered Business with Behavioral Matching

Behavioral Discovery

to Know, Engage and Grow

Employees and Clients

Life Style: Provide Fun,

Openness and Graphics

Stability: Provide Security,

Feelings and Instructions

Information: Provide Analysis,

Research and Details

Goal Setting: Provide

Discussion and Opportunities

Source: Gallup Organization 2009 and DNA Behavior Research 2001-2014


Advisor / Client Behavioral CompatibilityEnsure Advisor Knows How to Adapt as Fiduciary


Disposition Effect

Mental Accounting

Loss Aversion

Pattern Bias

Fear of Regret

Status Quo Basis

Risk Aversion

Benchmark Focus

Consolidated View

Herd Follower

Over Trading

Instinctive

Controlling

Optimism Bias

Over Confidence

Newness Bias

Financial

Personality Risk Can Increase Risk

- Taking

Need to Manage

Expectations

Down

Can Over-Influence

Caution

Need to Increase

Decision-Making

Confidence

Influence Decision-MakingProactive Behavioral Bias Management


Re

lation

ship

O

rien

tatedR

esu

lts

Ori

en

tate

d

Fast Paced

Moves Carefully

• Consolidated View• Over Trading• Optimism Bias• Risk Taker

• Spender• Herd Follower• Instinctive• Status Quo

• Risk Aversion• Loss Aversion• Fear of Regret• Disposition Effect

• Saver• Mental Accounting• Pattern Bias• Benchmark Focus

Financial DNA Natural Behavior Unique Style Matrix Including Behavioral Biases and Re-Framing Communications


Client’s Natural Behavior Risk LevelPortfolio Risk Grouping


Group 1 Group 2 Group 3 Group 4 Group 5 Group 6 Group 7

Pop. % in this

category

<2% 2-18% 19-30% 31-69% 70-81% 82-98% >98%

Portfolio

Structure

Capital

Protection

Ultra-

Conservative

Conservative Balanced Accumulation Growth Aggressive

Acceptable Conservative Portfolio

Acceptable Aggressive Portfolio

One Portfolio Risk Grouping

Approach: Build the portfolio within +/- 1 Grouping of the Natural Behavior Portfolio Risk Group as it reflects the long term “go to” default behavior. Subject to:

1. Review of the Investment Portfolio Risk Reward Analysis in the context of the client’s goals and financial capacity2. The client’s Potential Learned Risk Behavior Motivations.

Building a Behavior-Centered Portfolio with the ClientInclude the Client in the Decision-Making Process


Navigating Couple Differences Frank and Mary Butler


Recap: Process for Fiduciary Advisors Using Financial DNA InsightsImpacting Every Phase of the Financial Planning Process

Financial DNA Discovery Process

Advisor EQ and Team

Development

Advisor-Client Matching

Customized Communication

Tailored Portfolio

Construction

Deeper and More

Consistent Client Inquiry

Process

Greater Disclosure of

Client:Goals

InterestsPriorities

Offering Client Centered Solutions

Tailored to Style

Ongoing Behavioral Coaching

Compliance Monitoring

23% Revenue Uplift from

Client Engagement

1.5% on Portfolio AUM

Value


Wealth MentoringMoving from Advisor to Wealth Mentor

Traditional Advisory Approach:

• Financial Planning Technician

• Investment Manager

• Financial Education

Wealth Mentoring Role:

• Behavioral Guide

• Quality Life Guide

• Wisdom Transferor

• Collaborator

• Sounding Board Wealth Mentor

24


The ScienceBehind the Financial DNA Systems

Powerful and Unique Client

Centered Behavioral

Solutions Delivered in 123+ Countries and 11 Languages

Forced Choice Assessment

Measuring 64 Behavioral Traits

60+ Man Years of Development Invested Since

2001

Independent Validation by

Team with 100+ Years of

Experience


Behavioral Finance Resources - Tour

http://financialdna.com/behavioral-finance-resources/

Our focus here at DNA Behavior in the USA and Canada in 2016 is “active engagement of the client”. In order to truly provide a fiduciary role an Advisor needs to know their client.

In the USA our governing body FINRA and the DOL are moving in that direction to strengthen the active engagement to ensure that clients are receiving suitable guidance.

http://financialdna.com/behavioral-finance-resources/


For more information about Financial DNA

Contact:

DNA Behavior International

5901-A Peachtree Dunwoody RdSuite 375Atlanta, GA 30328(770) 274-0311

[email protected]

www.dnabehavior.comwww.financialdna.com

Follow us on LinkedIn: Financial Personality Insights and/or Financial DNA on Twitter

Questions and Contact Us Information

mailto:[email protected]

http://www.financialdna.com

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