NZ wealth managers rely on intuition for client risk suitability

Nearly two thirds (62%) of wealth managers in New Zealand claim to rely mainly on intuition when assessing client risk suitability and recommending appropriate investments, new research from behavioural finance experts Oxford Risk shows.

The study with wealth managers who collectively manage assets of around $144.5 billion found they are not just relying on their intuition. Almost all (94%) claim to have good tools and systems to back their intuition on what will work for investors.

Up to 62% believe there is enough good technology available in the marketplace to help them assess clients' risk suitability.

But the research shows there is still strong support for better systems to help them improve the service to clients and better assess risk suitability. Around 70% admit that existing systems are still too reliant on subjective human judgements.

And three-quarters (76%) admit that existing systems are too cumbersome to respond adequately to changes in client's circumstances which has been a particular issue in the light of recent volatility following the financial impact of COVID-19 and rising inflation and interest rates.

Oxford Risk, which launched in New Zealand nearly two years ago, builds software to help wealth managers and other financial services companies assist their clients in making the best financial decisions in the face of complexity, uncertainty, and behavioural biases.

"Wealth managers understandably rely on their intuition to some extent when assessing client risk suitability and recommending appropriate investments," says Bianca Kent, Head of Client and Strategy, New Zealand at Oxford Risk.

"However there is clearly an issue with the systems and processes they use to support that intuition despite the near unanimous confidence that wealth managers express in their existing technology.

"When the technology is still reliant on subjective judgements and is too cumbersome to react quickly enough there is a need for improvements to enhance the service to clients."

Oxford Risk's behavioural tools assess financial personality and preferences as well as changes in investors' financial situations and, supplemented with other behavioural information and demographics, build a comprehensive profile. Oxford Risk's financial personality tests can measure up to 20 distinct dimensions, of which six reflect preferences for ESG investing.

It believes the best investment solution for each investor needs to be anchored on stable and accurate measures of risk tolerance. 

"Behavioural profiling then provides an opportunity for investors to learn about their own attitudes, emotions, and biases, helping them prepare for the anxiety that is likely to arise," says Kent.

"This should be used to help investors control their emotions, not define the suitable risk of the portfolio itself."