Retaining Affluent Clients: Creating a Segment of One
VRL Financial News Publishing, April 2008
The relationship between adviser and client is the critical success factor in a profitable affluent banking programme.
The main reason banks lose affluent customers is not poor investment results, but the failure to understand and ‘get inside the head’ of clients. Unsurprising, given that a typical adviser could easily have over 300-plus clients, all of whom have diverse risk appetites, financial goals and emotional preferences, both stated and unstated.
Using the techniques explained in this report, a time-poor financial adviser can deliver improved client retention, growing profit per client as well as a host of spin-off effects that will result in an exceptional ‘share of wallet won’.
This report explains:
- Why the traditional approaches to understanding investor behaviour are insufficient.
- The twenty most common investor biases.
- How to discover and resolve biases.
It also provides:
- Diagnostic toolkits and client questionnaires.
- Hands on Case Studies.
- Exclusive interviews with 25 leading wealth management practitioners from the USA, Europe and Asia.
- A glossary of key terms and concepts.
Who should read this?
Heads of Retail or Wealth, Heads of Affluent Banking, Partners and Executives with responsibility for retail banking or wealth management, Professors of Banking and Heads of Banking or Wealth Management Practice.
What are they looking for?
Best practice in addressing these issues in peer banks.
Insight into client needs.
Insight into a rapidly growing sector
Executive Summary
Note on research methodology
Introduction
Chapter 1 – What is Behavioural Finance?
The Big Picture
Behavioural Finance Micro vs.
Behavioural
Finance Macro
A. The Great Debates of
Standard Finance vs.
Behavioural Finance
2 Overview
Efficient Markets vs. Irrational
Markets
Rational Economic Man vs.
Behaviourally Biased Man
B. Using Behavioural Finance
with Private Clients
C. Behavioural Finance in
a Successful Advisory
Relationship
Formulating Financial Goals
Maintaining a Consistent
Approach
Delivering What the Client Expects
Ensuring Mutual Benefits
Chapter 2 – Twenty Prominent Behavioural Finance Biases plus
five in-depth Research Summaries
A. Overconfidence Bias
B. Representative Bias
C. Anchoring and Adjustment Bias
D. Cognitive Dissonance Bias
E. Availability Bias
F. Self-Attribution Bias
G. Illusion of Control Bias
H. Conservatism Bias
I. Ambiguity Aversion Bias
J. Endowment Bias
K. Self-Control Bias
L. Optimism Bias
M. Mental Accounting Bias
N. Confirmation Bias
O. Hindsight Bias
P. Loss Aversion Bias
Q. Recency Bias
R. Regret Aversion Bias
S. Framing Bias
T. Status Quo Bias
Five in-depth Research Summaries
A. Boys Will be Boys: Gender,
Overconfidence and Common
Stock Investment
B. The Endowment Effect, Loss
Aversion and Status Quo Bias
C. The Disposition to Sell
Winners Too Early and Ride
Losers Too Long: Theory and
Evidence
D. The Impact of the
Examination of a Property
on the Perception of Value
and the Desirability of a
Following Property
E. Irrational Pessimism and the
Road to Revulsion
Chapter 3 – Practical Application of Behavioural Finance Case
Studies
A. Introduction
B. Case Study 1: Mrs. Ocean
C. Case Study 2: Mr. Moon
D. Case Study 3: The Sun Family
E. Conclusion
Chapter 4 – Original Research:
Trends in the Use of Behavioural Finance
Research with Private Clients
Chapter 5 – Advisor Interviews
A. Kevin A. in Switzerland
B. Royce B. in Canada
C. Paul B. in the USA
D. Silvio B. in Italy
E. Jeffrey B. in the USA
F. Peter B. in the USA
G. John C. in the USA
H. Maggie C. in the USA
I. Gabriele D. in Italy
J. Tony E. in the USA
K. Harold E. in the USA
L. Gord F. in the USA
M. Yehuda F. in the USA
N. R.G. in Singapore
O. William K. in Canada
P. Damon K. in the USA
Q. Bin L. in China
R. Gary M. in the USA
S. Raymond M. in the USA
T. Michael M. in the USA
U. Brigitte M. in the USA
V. Richard M. in the USA
W. Nancy P. in the USA
X. John R. in the USA
Y. Andrew R. in the USA
Z. Drake Z. in the USA
Appendix A – The History of Behavioural Finance
A. Introduction
Historical Roots
Rational Economic Man
B. Modern Behavioural Finance
Twentieth Century Experimental
Economics
Cognitive Psychology
Decision-Making under
Uncertainty
Kahnemann and Tversky
Kahnemann and Riepe
C. Psychographic Models Used
in Behavioural Finance
Barnewall Two-Way Model
Bailard, Biehl & Kaiser Five-
Way Model
D. New Developments in the
Practical Application of
Behavioural Finance Micro
Appendix B – Key Terms and Concepts
Appendix C – Key Figures
Michael M. Pompian, CFA is the Director of the Private Wealth Investment Consulting practice at Hammond Associates in St. Louis, Missouri, USA. He holds an M.B.A. from Tulane University and B.S. from the University of New Hampshire. Michael is a Chartered Financial Analyst (CFA), a Certified Financial Planner (CFP) and a Certified Trust Financial Advisor (CTFA). His experience includes working for several major USA-based financial advisory firms focusing on family office clients. He has published numerous investing articles.
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