The widespread practice of segmenting clients according to assets under management (AUM) is becoming outdated.
Despite 70% of advisers still using this categorisation strategy, the Financial Conduct Authority (FCA) has urged the industry to look beyond the AUM model.
Professionals have started differentiating clients according to their profession and personal background, but advisory platform Nucleus believes the sector needs to go further.
It has entered into a strategic partnership with behavioural insights firm Be-IQ to offer UK financial advisers the opportunity to understand their clients’ behaviours and biases, and base their financial planning on such information.
To understand how this will work, International Adviser caught up with Nucleus’ chief customer officer, Barry Neilson, and Be-IQ’s founder and director Neil Bage.
Understand thy self
The behavioural data company was founded five years ago and has created an academically underpinned model to show people what type of biases they might have.
“We figured out a way to ‘get inside people’s heads’ [to understand] the unconscious behavioural biases that are driving their decisions,” Bage said.
“Every decision is impacted by bias to varying degrees.
“We spent three and a half years doing research, and then we created a highly gamified app which anybody can download for free.”
It is called Beam and takes the user through a series of games, at the end of which it is able to pinpoint any type of behavioural biases they might unconsciously have or show.
“It reveals who they really are in relation to decision-making around money and gives them an insight into decision-making in life,” Bage added.
From clients to advisers
The partnership allows Nucleus to offer Be-IQ’s dashboard to its financial advisers through a reduced licence fee which they can pay directly to the data firm.
The data firm’s ‘Beacon’ dashboard will work as a centralised platform where planners can store all of their clients’ behavioural data collected by the Beam app.
Neilson and Bage believe that advisers can optimise their time by understanding what type of reactions or biases clients may have.
This is because they would know what kind of language and/or tone to use with different clients, as well as who to prioritise and which client may need reassurance or explanation of market movements or instability.
According to Neilson, this would fit right in with the FCA’s suitability requirements.
“We think that it will almost certainly lead to an expectation from the regulator; the individual client suitability standards will have to be higher.
“So if you’ve got the ability to understand your clients in a much deeper basis; then, quite rightly, the expectation will be that [advisers] will follow through and give more specific advice, and a higher standard in the justification of that advice through the suitability process.
“It will probably also result in the advisers thinking much more deeply about how they segment their client bank,” he added.
Data safety
One issue, however, is client data, especially in the aftermath of the General Data Protection Regulation (GDPR).
Bage said that the information is fully in the client’s hands and only they can decide who to share it with.
Financial advisers will be able to retain any data they would need to keep from a regulatory perspective.
If a client changes adviser, however, they have the ability to press a button in the Beam app which will automatically delete any information about their biases and behaviours from their former adviser’s dashboard.
But in order to pull this off, financial planners would need to know how to coach their clients and help them understand their behaviour and how to improve their biases.
Nucleus told IA it has a continuing professional development (CPD) licence and that the potential series of webinars and training sessions required for advisers to start using the dashboard could be made CPD-accredited.
Neilson added: “The momentum around behavioural coaching is growing, to the extent that we see this as the next big leap in financial planning.”
