Field Research
In just 8 days, 5100 French banking clients digitally completed their risk profile using two distinct methods: a traditional questionnaire and an alternative, playful method based on decision science.
Three main results stand out. First, a vast majority of participants preferred the playful approach over a traditional questionnaire, especially inexperienced clients. Second, the alternative method addresses investor preferences that augmented the output from a traditional questionnaire, contributing to the third finding: participants rate the augmented method higher with regards to its usefulness and applicability to their own circumstances. The French findings confirm earlier research undertaken by everyoneINVESTED in Belgium, Ireland, and The Netherlands.
Traditional profiles are limited
The traditional approach towards risk profiling with its conventional – and oftentimes criticized – questionnaires, constitutes one of the significant hurdles in a digital investment journey. Advisor assistance is critical to complete the questionnaire, and often it is left to the advisor to make a generic risk profile actionable.
Can financial institutions do better?
Financial institutions are continuously seeking ways to link more clients to suitable investment products. Technology can be an essential driver here albeit only when the regulatory accepted application and suitability process is presented in an engaging manner, which the investor succeeds in completing. Investor onboarding must critically include the legal mandate of suitability and risk profiling, but the process truly adds value if it additionally fosters a long-term client relationship. In a recent consultation paper, the European Commission (1) indeed welcomes digital recruitment of retail investors if due process for investor protection can be observed.
Technologically innovative and substantively aligned with the regulator
everyoneINVESTED invited participants to experience an alternative for traditional risk profiling with improvements both on content and method. In terms of content, our augmented approach mapped the participant’s emotional ability to bear losses when pursuing gains. This information enhances traditional risk profiles, and today is only addressed by advisors via human-to-human conversation which is expensive and increasingly difficult to scale. In fact, the European Securities and Markets Authority (ESMA) themselves favor inclusion of behavioral science approaches (3) to support the risk profiling process.
In terms of method, everyoneINVESTED presented participants a personalized sequence of choices. Unlike a static questionnaire, the interactive process makes participants think and links the output unambiguously to the choices they make along the way.
Will people follow? We put it to the test.
In just 8 days, 5100 participants completed their risk profile without any human interaction or support. 66% percent of the participants had never been profiled before. Regardless of their experience people completed the augmented profiling by themselves. We feel this “playful” approach had a significant bearing on the results.
The results show a clear majority of the French favoring an interactive assessment to the traditional, static questionnaire, regardless of their age, education level, financial institution and whether they hold investments or not. 58% percent of the French who haven’t been profiled before by their bank preferred the interactive method. Participants also give the playful approach a higher score on preference, credibility, and usefulness.
Turn compliance into an acquisition tool
The field research empowers banks to start building a digital process that yields better investor risk profiles more quickly and at lower cost. People, through a more engaging approach, will playfully inform what drives their financial well-being and how they balance risk and reward. This way banks collect legally required information in preparation of future investment advice and may, in fact, have some of this information already on record in their client management systems.
Other notable takeaways
The French hold on to their gains but gamble their way-out of losses
75% of the French don’t want to miss out on a certain gain. But at the same time, 56% will take their chances to avoid a certain loss. This result confirms the key principles of behavioral finance made popular by Nobel laureates Daniel Kahneman (2002) and Richard Thaler (2017). Similar behavior helps explain the propensity to save or invest in times of high inflation.
Losses hurt more!
The emotional response to losses is much stronger than the response to corresponding gains. The French feel the pain from losses 1.5 times more than the pleasure from gains. This aggregate result again aligns with established academic research. The real value however is the fact that everyoneINVESTED unambiguously quantifies the number for each participant individually, which provides banks crucial input – directly from the client – to personalize the suitable offer.
Graphics are for the bold
Some methods use graphics and price evolutions. Many participants indicate such visuals are a challenge, regardless of the participant’s level of education. This important takeaway reinforces the need to make digital investor onboarding a process that encourages financial inclusion and protects investors from investment products that are incongruent with their behavioral characteristics.
Defaults matter
When asking for input based on a range of possibilities with a preselected default option, about 50% of the French confirm the default setting. This is a textbook decision science finding. Digital processes tend to use default answers to improve completion rates: leading people towards clicking “accept” and moving to the next screen. It is therefore essential to present the information in the most personalized way possible, for example, by linking the range of possibilities to the client’s personal situation.
(1) European Commission (2022) Targeted consultation on options to enhance the suitability and appropriateness assessment.
(2) Dennie van Dolder and Jurgen Vandenbroucke (2022), Behavioral risk profiling, available at www.ssrn.com
(3) ESMA (2017) consultation paper 35-43-748.
Eager to learn more?
We digitally profiled 5100 French banking clients in less than 8 days without any human intervention. Another way to approach potential investors at a fraction of the cost! Curious about more insights? How you compare to other banks?
