Part 2: Does Your Tech Stack Embrace ‘Financial Therapy?’

by | Sep 13, 2021

By Sarah Rasmuss, Chief Product Officer for CircleBlack

In part one of this blog series, we examined how technology helps advisors provide financial therapy to their clients, which in turn, helps them become better investors. With the right tech stack, advisors can gather data from multiple sources and flawlessly blend risk and financial planning programs, and artificial intelligence technologies to create highly customized client experiences.

Now, through technology advisors can serve as financial guides and change how investors react through advice that includes financial therapy.

Correcting biases; changing attitudes

We know clients have strong feelings about their wealth and investments. Working on this assumption, behavioral finance tools seek to isolate and address those feelings that may be slowing progress toward goals. They can shed light on how clients feel about their investments, including identifying beliefs and preferences that may be leading to irrational decision-making. They have vast potential to help clients reach better outcomes.

We know from behavioral finance research that excessive choice breeds inertia—or, that given many options, most people will choose no option. Advisors can counter this inertia for clients by narrowing their focus to one option, identifying only the next best step to take to work toward financial wellness through incremental steps.

With this hyper-personalized approach, an advisor might inform a younger investor about the need to reassess risk tolerance or a high-net-worth investor about the benefits of alternatives in an overall investment plan. Through a tech stack, we can seamlessly track these opportunities with data and analysis and recommend appropriate actions that result in long-term change.

We also know from research the many ways in which emotions and biases can overpower rational perspectives and decision making. Traditional economics envisions a logical thinker, while behavioral finance recognizes that investors are often plagued by a range of biases such as overconfidence, an overly strong aversion to loss, and the tendency to overvalue the initial information used to make a decision.

Raising these flags can position the advisor as a kind of financial therapist, affording them a more nuanced control over how their clients relate to money, whether releasing them from biases or introducing them to new thinking about assets. It means having a deep understanding of an investor’s personal and financial objectives, and of the obstacles they face in achieving them.

To become that reassuring voice, advisors also need to strike a cadence with each client, finding ways to learn their habits and isolate their triggers. They need to understand complexities from all angles and decide what will ultimately motivate that overly conservative or overly aggressive investor to change their attitude.

While we cannot usually eliminate biases, we can acknowledge them and help reconnect investors with the path toward their goals. We can use technology to help push boundaries and build trust in the advisor’s ability to serve as a financial guide.

Ultimately, an advisor who recognizes these personal challenges and addresses them as part of the overall plan will cultivate a more powerful relationship than one based on investment advice alone. If the tech stack has more potential, the advisor and client do as well.

CircleBlack’s portfolio management and performance reporting technology can help you eliminate investor biases by helping them to isolate their investing triggers and build a relationship with you as their ‘financial therapist’ guide. Contact us to learn more.

Sarah Rasmuss is Chief Product Officer for CircleBlack, a unified best-of-breed wealth management platform that consolidates data from multiple custodians and allows advisors to choose the best solutions to fit their tech stack.