Take the legendary temple of Apollo at Delphi. Built in the 4th century BC, the temple was ornamented with the words Γνώθι Σαυτόν (Know Thyself). Today, helping clients know themselves with respect to risk is one of the most discussed topics in wealth management, but it has proven difficult to achieve.
How effective is risk profiling today?
A report prepared a few years ago by the Investor Advisory Panel of the Ontario Securities Commission brought to light some disappointing statistics on dealers’ attempts to getting risk profiling right:
• 28% of firms had poorly worded questions that combine multiple factors in one question or had questions that were confusing or logically inconsistent.
• 75% had scoring models that had arbitrary weightings of questions, that merged multiple factors without clarity, or that weighted a specific factor (like age) heavily.
• 64% of questionnaires exhibited two or more of these three problems: poorly worded questions, poor scoring models or no ability to handle risk-averse clients.
Why are dealers so off the mark?
One of the main problems is that there is inconsistency in the definition of risk concepts and lack of understanding of the different factors involved in risk profiling. What is risk tolerance? What is risk aversion? How about risk capacity and risk need? Even if there is clarity on the definitions, is a self-selected risk profile reflective of the client’s actual behaviours? It might satisfy the “check-the-box” compliance routines but it’s a far cry from helping clients and selecting appropriate investments.
How can Pascal help?
At Pascal, we believe in insight-driven financial planning. We deliver this by placing the end client at the heart of the planning process in what we call InvestorDNA. We not only help advisors understand their clients, but we also help clients better understand themselves and their decisions. By providing fresh behavioural insight, we empower advisors to offer their clients an unmatched level of clarity, engagement and education in a personalized and systematic manner. While this enables a truer KYC (Know Your Client), it also results in a much needed CKY (Client Know Yourself). And this is the missing link: advisors and clients are truly aligned only when KYC meets CKY!
The wisdom of the temple of Apollo at Delphi — Know Thyself — continues to have resonance not only in peoples’ psychological well-being but also in a narrower sense; in their financial well-being. Through the use of scientifically validated psychometric assessment methodologies rooted in behavioural finance, Pascal enables individuals to gain an in-depth understanding of the behavioural levers that influence financial decision-making.
Learn more about Pascal at www.pascalfinancial.com
Fotios has more than 25 years of experience in wealth management operations and technology. Prior to joining Pascal, Fotios founded and served as President of Vexo, a fintech that brought to market Canada’s first technology solution enabling mutual fund dealers to access ETF markets. He had a distinguished career at National Bank of Canada where he headed up the wealth management operations in Toronto. An active industry and community volunteer, Fotios currently serves as board chair for the Learning Enrichment Foundation. Fotios holds a BComm from Concordia University and an MBA from Queen’s University.
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