This article is for financial advisors, leaders, coaches, and consultants seeking to understand the research behind what elements make-up a person’s financial behavior capability (FBC).
This article is for financial advisors, leaders, coaches, and consultants seeking to understand the research behind what elements make-up a person’s financial behavior capability (FBC) and arm themselves with the knowledge needed to better assist clients in managing their financial position and achieving their goals by understanding three key elements elements.
Common Questions:
How does DNA Behavior propose evaluating a client's Financial Behavior Capability (FBC) beyond investment risk tolerance?
- According to DNA Behavior, what are the primary key elements making up a client’s FBC?
- How can understanding a client's FBC elements help financial planners assist them in managing their financial position and achieving their goals?
- According to the research findings, what percentage of the population exhibited a very high FBC?
- What is the significance of the propensity to save in achieving a high FBC score?
- What does the Client Relationship Management Research reveal about the ideal clients for financial planners from a behavioral management perspective?
Solution Overview:
Financial planning and investment portfolio design traditionally focus on assessing a client's situational investment risk tolerance. However, DNA Behavior argues that a more comprehensive approach is needed to evaluate a client's Financial Behavior Capability (FBC). FBC encompasses three key elements: Saving and Budgeting, Wealth Creation, and Risk Taking. Financial planners can better assist clients in managing their financial position and achieving their goals by understanding three basic elements, Saving and Budgeting, Wealth Creation, and Risk Taking.
Understanding Wealth Creation and Client-Planner Relationships:
Financial Behavior Capability Research: To conduct the FBC Research, DNA Behavior examined 65,000 randomly selected participants who had completed the DNA Natural Behavior Discovery Process in 2018. The research categorized clients into various FBC levels based on their scores in the three elements. The findings revealed that only 11% of the population exhibited a very high FBC, necessitating high scores in all three elements. The research further highlighted the importance of the propensity to save for achieving a high FBC score.
Components of Financial Behavior Capability:
Saving and Budgeting: The propensity for Saving and Budgeting reflects a client's instinctive behavior for accumulating wealth by saving money and being disciplined about keeping to a budget. It emphasizes the significance of financial discipline for overall happiness, health, and long-term financial well-being.
Wealth Creation: The propensity for Wealth Creation assesses a client's natural drive to create new wealth by setting competitive goals and demonstrating a determination to achieve them. This element reflects the client's behavioral motivation to increase capital and generate income.
Risk Taking: The propensity for Risk Taking evaluates a client's inclination to generate wealth by taking personal and financial risks. However, combining risk assessment with this element is essential to determine the appropriate risk tolerance level to achieve financial goals.
Understanding Natural Behavior Unique Styles: Each individual possesses a unique blend of measured Natural DNA Behavior Factors and Sub-Factors, resulting in over 4 trillion possible measurement combinations. To simplify understanding, individuals are assigned one of ten blended Natural Behavior Unique Styles in their Financial DNA report. These styles indicate the probable levels of Natural ME (behavioral propensity) in the three FBC elements.
Client-Planner Relationships: The Client Relationship Management Research revealed that only 3% of clients are ideal for financial planners from a behavioral management perspective. These clients exhibit high FBC and possess a relational style that aligns with a congenial, long-term working relationship. Conversely, the remaining 97% may present challenges in making financial decisions supporting wealth accumulation or establishing a mutually enjoyable interpersonal dynamic.
The Financial Behavior Capability Research emphasizes the importance of measuring a client's level of FBC, considering the elements of Saving and Budgeting, Wealth Creation, and Risk Taking. Financial planners can provide more effective guidance in managing wealth and achieving financial goals by understanding these elements and aligning them with the client's unique behavioral profile. Furthermore, recognizing the impact of client-planner relationships can help financial professionals navigate potential challenges and enhance the overall client experience.
For more information, please read the following booklet: Financial Behavior Capability Research