New tool helps clear blind spots

Tech­nol­ogy uses be­havioural fi­nance to as­sist ad­vis­ers in un­der­stand­ing clients’ psy­cho­log­i­cal and emo­tional fac­tors when mak­ing de­ci­sions


Emo­tions of­ten over­ride logic in the de­ci­sion-mak­ing process, and fi­nan­cial de­ci­sion-mak­ing is no ex­cep­tion.

To that end, TD Wealth Pri­vate Wealth Man­age­ment re­cently launched tech­nol­ogy that uses “be­havioural fi­nance” to help ad­vis­ers un­der­stand clients’ fi­nan­cial blind spots.

Be­havioural fi­nance looks at how per­son­al­ity in­flu­ences fi­nan­cial de­ci­sions. The field of study ex­plores why peo­ple some­times make bi­ased, un­pre­dictable or ir­ra­tional fi­nan­cial choices.

The TD tool cre­ates a wealth per­son­al­ity re­port for high-net-worth clients, us­ing a model that iden­ti­fies per­son­al­ity traits that can af­fect be­hav­iour, ac­cord­ing to the bank. It notes that the tool will be used to aug­ment the cur­rent wealth ad­vi­sory process. Client par­tic­i­pa­tion is op­tional

Jeet Dhillon, vice-pres­i­dent and se­nior port­fo­lio man­ager for TD Pri­vate Wealth Man­age­ment, ex­plains that clients take a ques­tion­naire and, based on their an­swers, a re­port is gen­er­ated.

“Ad­vis­ers use the wealth per­son­al­ity re­port to de­velop a cus­tom­ized in­vest­ing strat­egy based on the per­son­al­ity traits and in­di­vid­ual ex­pe­ri­ences of their clients.” JEET DHILLON TD PRI­VATE WEALTH MAN­AGE­MENT VICE PRES­I­DENT

“Ad­vis­ers use the wealth per­son­al­ity re­port to de­velop a cus­tom­ized in­vest­ing strat­egy based on the per­son­al­ity traits and in­di­vid­ual ex­pe­ri­ences of their clients,” she says.

Be­havioural fi­nance is con­sid­ered a pil­lar of be­havioural eco­nom­ics, a broader field of study that ex­plores the ef­fects of psy­cho­log­i­cal, so­cial, cog­ni­tive, and emo­tional fac­tors on eco­nomic de­ci­sions. The sci­ence be­hind be­havioural eco­nom­ics — and more specif­i­cally be­havioural fi­nance — goes well be­yond aca­demic the­ory with many real world ex­am­ples, Dhillon says.

While it’s a rel­a­tively new area of study, it is quickly gain­ing mo­men­tum among the aca­demic and in­vest­ment com­mu­nity, she says.

The tool is cur­rently only avail­able to high net worth clients, de­fined as those hav­ing $750,000 plus of in­vestable as­sets.

“Is it promis­ing? Sure,” says Rot­man School of Man­age­ment fi­nance pro­fes­sor Eric Kirzner.

“It’s a le­git­i­mate field and a very in­ter­est­ing field be­cause we all have bi­ases in how we make fi­nan­cial de­ci­sions.” he says.

“I’m guess­ing they’re us­ing it as a mar­ket­ing tool.” Mar­ket­ing pro­fes­sor Ken Wong of Queen’s Uni­ver­sity’s Smith School of Busi­ness con­sid­ers TD’s new prod­uct “a bold re­sponse to the emerg­ing ser­vices of­fered by fin-tech (fi­nan­cial tech­nol­ogy) and robo-ad­vis­ers.”

“It’s smart mar­ket­ing when your prod­uct — ad­vice — is in­tan­gi­ble and there­fore in­vis­i­ble, so they just added a tan­gi­ble di­men­sion,” he says.

For clients, it means a “more mean­ing­ful and per­son­al­ized fi­nan­cial conversa­tion and on­go­ing re­la­tion­ship with their ad­viser,” says Dave Kelly, se­nior vice-pres­i­dent, pri­vate wealth man­age­ment, TD Wealth.

“With a deeper fo­cus on dis­cov­ery, our ad­vis­ers can bet­ter iden­tify and un­der­stand a client’s fi­nan­cial per­son­al­ity.”

Even the savvi­est in­vestors can ben­e­fit from know­ing their so-called wealth per­son­al­ity, he adds. Here are some of the most com­mon traits that a TD ad­viser may un­cover from the process: Fram­ing ef­fect. Re­spond­ing to the same prob­lems dif­fer­ently de­pend­ing on how they are pre­sented. For in­stance, you may view a 10 per cent loss on a $1 mil­lion port­fo­lio dif­fer­ently than a $100,000 loss, even though those are the same thing. Fa­mil­iar­ity. The ten­dency to over-in­vest in what you are fa­mil­iar with. You may have a ten­dency to in­vest more heav­ily in com­pa­nies or in­dus­tries you know, par­tic­u­larly those in which you work, which could lead to an over­con­cen­tra­tion in a spe­cific sec­tor. Sen­si­tiv­ity to noise. Re­cent in­for­ma­tion can tempt you to sec­ond-guess your es­tab­lished in­vest­ment strate­gies. You may then make re­ac­tionary changes to your port­fo­lio at in­op­por­tune times based on the lat­est news, which can neg­a­tively im­pact your port­fo­lio. Loss Aver­sion. The ten­dency to feel losses more strongly than gains. If your port­fo­lio lost 10 per cent in value, this might gen­er­ate a stronger emo­tional re­sponse than a 10 per cent gain in value. Short-term fo­cus. The ten­dency to value a re­ward that ar­rives sooner — and dis­count a re­ward that ar­rives later. You may have a hard time vi­su­al­iz­ing re­tire­ment in­come and expenses or have dif­fi­culty sav­ing for a future goal. Over­con­fi­dence. You over­es­ti­mate your own in­vest­ment abil­ity, so you en­gage in higher trad­ing ac­tiv­ity than the av­er­age person, which has been shown to lead to lower re­turns.


TD Wealth Pri­vate Wealth Man­age­ment has launched tech­nol­ogy that uses "be­havioural fi­nance" to help in­vestors.

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