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Advisors as FiduciariesClient-Centered Solutions
July 2016
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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
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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
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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
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“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
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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
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Value PropositionTangible Benefits of Behavioral Management
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What Happens When Money Negatively Triggers Emotions?
Litigation Risk
Client Retention
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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
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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
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Financial DNA® = Financial Personality
Advisor Client Communication
Behavioral Biases
FinancialPersonality
Risk Profile
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Quicker and 91% More Reliable Method to Predict Reactions to Market / Life Events
Financial DNA – 46 Questions (15 to 20 Mins)
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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
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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
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Re-Framing Information Minimize Risk of Miscommunication
Copyright © 2001 Universal Press Syndicate
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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
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Advisor / Client Behavioral CompatibilityEnsure Advisor Knows How to Adapt as Fiduciary
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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
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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
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Client’s Natural Behavior Risk LevelPortfolio Risk Grouping
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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
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Navigating Couple Differences Frank and Mary Butler
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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
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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
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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
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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.
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For more information about Financial DNA
Contact:
DNA Behavior International
5901-A Peachtree Dunwoody RdSuite 375Atlanta, GA 30328(770) 274-0311
www.dnabehavior.comwww.financialdna.com
Follow us on LinkedIn: Financial Personality Insights and/or Financial DNA on Twitter
Questions and Contact Us Information