1.Bending of strict TF principles produces much better overall results as clients feel engaged, become easier to advise, and are ultimately happier with their portfolios and more likely to follow strategies and avoid costly mistakes.
2. Behavioral finance has developed a few behavioral models to help identify customers
Barnewall's Behavioral Model: Passive and Active Investors
A passive investor can be described as an investor who has accumulated wealth through a long and steady employment, very disciplined saving, or by inheriting money.
An active investor, on the other hand, is someone who has accumulated wealth by taking an active role in investing their money.
3.
4. Bailard, Biehl, and Kaiser Model (BB&K)
1. This behavioral model is a five-way model, introduced in 1986, and is more complex than Barnewall's model. In this model, investor personalities are classified along two axes: level of confidence and method of action.
2. Level of confidence is meant to categorize how much confidence an individual displays when making decisions. An individual with low confidence is labeled as anxious. At the opposite of the spectrum, individuals with high confidence level are defined as confident. There are no intermediate levels, but a financial advisor could notice that a specific individual may fall in between the two extremes.
3. Method of action is intended to be used to identify whether a specific individual is methodical, analytical, or careful in the way they make decisions or whether they tend to be more on the spontaneous side. An individual who is very methodical and analytical is considered to be careful. At the opposite end of the spectrum, an individual who is mostly spontaneous is defined as impetuous.
5. Pompian
- passive-preserver: endowment, loss aversion, status quo, regret aversion, mental accounting, anchoring.
- friendly follower: regret aversion, availability, hindsight, framing.
- independent individualist: overconfidence, self-attribution, conservatism, confirmation, representativeness, availability.
- active accumulator: overconfidence, self-control, illusion of control
