Insights from UK Market Research
In the ever-evolving world of financial services, there’s always a keen eye on the balance between regulatory compliance and user experience. With digital transformations rapidly underway and increasing regulatory pressures, institutions face the challenge of delivering seamless digital experiences without compromising on regulatory demands.
The recent UK market research sheds a promising light on this topic and offers an insightful perspective on the future of investor profiling in a digital context.
A Step Back: The Motive
Before diving into the findings, it’s essential to understand the motivation behind our solutions. We aim to harmonize user convenience with business impact, all while adhering to strict regulatory standards. In investments, especially in a digital era, adhering to regulations isn’t merely a choice—it’s a necessity.
The Challenge of Digital Risk Profiling
One of the standout solutions is focused on investor profiling. With new regulations on the horizon, the significance of digital risk profiling has never been more critical. Traditional banks and financial institutions are at a crossroads—how can they meet the growing demand for frequent risk profiling without drastically increasing costs? If banks were to double their advisors to cater to this need, it would inevitably lead to soaring operational costs—a scenario most institutions would prefer to avoid.
A Digital Solution with High User Convenience
Our solution promises to streamline the risk profiling process in a digital landscape. We’ve road-tested this across various European markets, and the results from our UK study are auspicious. Over 5,000 UK residents navigated through our risk profiling user flow, offering valuable feedback through Net Promoter Scores (NPS), Smileys, and other quantitative and qualitative metrics. This substantial sample size affirms the robustness and efficiency of our digital solution.
Understanding what drives people’s decision-making
Beyond conventional risk profiling, with a focus on the balance of return vs dispersion, we delved into behavioral drivers like the emotionality in balancing gains and loss, or the susceptibility to framing. And we do so with a quantitative method of the highest standards, aligned with the vision of FCA’s Consumer Duty and data-based servicing. The age of advisors merely jotting down their beliefs about the client’s behavioral drivers in a report is waning. Now, decisions and advice should be backed by solid data. Using tools like ours, which have been tested and rated by thousands, offers a data-driven foundation to base human-assisted as well as digital-only advisory services.
”Client Risk Profiling:
Faster, cheaper, and easier than traditional questionnaires.
Prepares for better advice. Results in more business.
Measuring client behavior
People’s decision-making is much more refined than the classic risk-based model can capture. Behavioral aspects like loss aversion are acknowledged to be significant, complementary factors that explain people’s actions. Encouraged by regulators, financial institutions seek ways to incorporate clients’ behavioral drivers in their investor profiling.
The most critical obstacle is the lack of a valid measurement method that financial institutions can integrate straightforwardly into existing processes. Our method removes this obstacle. In all markets, including the UK, our results reassuringly show aggregate patterns and sensitivities that align with established research, making our method a standard to collect risk preference data comparable to industry standards for length, size, or weight.
- YES, we find people are risk averse when dealing with gains,
a fundamental law in finance that explains the value of diversified investing.
- YES, we find this risk aversion erodes with age;
a common assumption in lifecycle or goals-based investing.
- YES, we find this risk aversion is more pronounced amongst women compared to men, a general finding in research on trading behavior and overconfidence.
- YES, we find people are risk tolerant when dealing with losses,
a fundamental property in the workhorse model of behavioral economics, i.e., prospect theory.
- YES, we find people are susceptible to framing,
confirming that representation impacts people’s choices.
- YES, we find losses loom larger than commensurate gains;
like in real life, people make more effort to prevent a loss than to pursue a gain.
The future of (digital) investor profiling in the UK seems promising, thanks to solutions that prioritize user experience without neglecting the ever-tightening regulatory environment. As regulations evolve and the demand for seamless digital experiences grows, institutions must adapt. With the insights from our UK report, we’re one step closer to realizing a harmonious digital investor profiling.
WANT TO LEARN MORE?
Join us for two groundbreaking webinars unveiling the results of this landmark study with over 5000 UK banking clients. Discover how to enhance financial well-being and investor protection.
Session 1: Empowering investors and advisors
Hosted by everyoneINVESTED
Gain insights how 5000 UK banking clients value future-proof profiling on their risk discovery journey and how this empowers advisors to motivate good outcomes.
Session 2: Pushing client-centricity beyond compliance
Hosted by ORTEC Finance
Learn how future-proof suitability based on high quality data links client preferences to the initial allocation and to the ongoing management of portfolios.