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What are prospects and clients really thinking?

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Financial advisors must ask themselves the daunting question of how honest clients and prospects are with them.

Advisors who don’t fully understand a client’s situation will find it difficult, if not impossible, to provide the best advice. Clients and prospects generally want to be straight with their advisors, but sometimes psychological and behavioral issues get in the way.

Advisors can’t formulate financial plans for clients without knowing the details of their financial lives. In addition, it is important to know about clients’ health, goals and attitude toward risk.

From an advisor’s perspective, this is just business as usual, but from the client’s perspective it may feel intrusive.
Furthermore, a client’s risk tolerance and/or appetite for risk are often difficult to gauge. The standard industry practice is for clients to self-assess their risk.

Some firms simply ask a client to indicate their appetite for risk. Others use questionnaires designed to better understand clients’ risk tolerance.

Although many of the risk assessment tools used by advisors are far superior to the ones used a few years ago, there may be more that advisors can do to understand a client’s attitudes toward money and their feelings about risk. For instance, new developments in facial recognition technology may help advisors better understand these attitudes.

I recently spent some time taking a preliminary look at nViso, a facial recognition and emotion analytics firm. It isn’t the only company pursuing this technology, but it serves as a good example of where the technology is headed and how it might be applicable to advisors.

First, a little background.

According to an nViso white paper, “Facial expressions are one of the strongest visual methods to convey emotions and one of the most powerful means used by human beings to relate to each other. Facial imaging, driven by advances in machine learning software, passively records human emotions from facial expressions recorded via camera.”

Facial imaging can then be used to gauge a person’s response to various stimuli, such as verbal prompts, charts and videos.

Facial imaging technology overcomes issues of direct and intrusive questioning, and responses are consistent across cultures and ethnicities, according to nViso.

There is a long history of linking facial expressions and emotions. As early as 1872, Charles Darwin postulated that facial expressions were universal across cultures, ethnicities and even species.

More recently, both academics and law enforcement agencies have used facial recognition techniques with great success.

NViso thinks that facial recognition technology has applicability in financial services, and it has already achieved one successful implementation in New Zealand.

The company contracted with the Bank of New Zealand incorporating its EmotionScan technology into a special BNZ website (www.begoodwithmoney.co.nz/emotion-scan).

EmotionScan aims to use state-of-the-art 3D facial imaging, coupled with artificial intelligence algorithms, to track and analyze users’ emotions in real time, to find out how they really feel about money, so that they can make better financial decisions.

In the BNZ case, the website takes users through eight simple scenarios, which they can experience in private, using their own computers and webcams. As the users go through the scenarios, the emotion recognition software tracks their responses through the webcam.

Through the BNZ website, nViso’ s technology, which aims to accurately tracks the smallest movements of 43 facial muscles to capture and analyze facial expressions, performs an analysis as participants listen to a series of scenarios related to cash flow, budgeting, mortgages, retirement, financial security, financial control, debt, dependents, donations and savings.

The movements detected by the webcam are assessed using six key emotions: annoyance, happiness, surprise, fear, distaste and sadness.

The user receives immediate feedback in the form of a report. This report highlights for potential or existing customers the financial areas with which they are most comfortable and which they may be interested in addressing with the bank.

It should be pointed out that this technology isn’t limited to PCs. Anyone who is comfortable doing so can also access this technology via a digital kiosk or a session on a smartphone or tablet, should the sponsoring party offer these options.

Although the BNZ example is a good introduction to the technology, readers may not grasp how the technology can be adopted for use by advisors and their clients or prospects.

To address this issue, nViso recently created a website: www.emotionadvisor.com that was on display at a recent eMoney conference. I logged on to the site and signed in as a prospect to see what the experience was like.

First, the application captured some basic demographic information, such as name, email address, approximate income, gender and age.

Name and email address are presumably for marketing purposes and so that I can receive a report of my results by email. Income can be used for marketing purposes as well, to see, for example, that my income bracket is one that the firm is targeting, but it is also used for benchmarking, as are age and gender.

Next, I am asked to rank six financial priorities by dragging and dropping them in the order I choose. These subjects are cash flow, investment portfolio, family and giving, retirement, financial advisor, and financially organized.

The next step is to set up my webcam and microphone, which the app walks me through.

When I am ready to proceed, the software recites various scenarios to me and captures my facial expressions through the webcam as I am listening. Once the scenarios are completed, which takes just a few minutes, the results are tabulated and presented on screen.

The data can be viewed in a number of different ways. A few examples are displayed in the accompanying illustration.

In the upper chart, my reaction to each of the topics is represented by a bar. The larger the bar, the greater my reaction.

The dotted horizontal line represents the reactions of my peer group to the same stimuli. As the chart illustrates, I reacted most to cash flow and least to the financial advisor portion.

Below, there are two lists of rankings: rational and emotional. The former corresponds to my original answers at the beginning of the exercise.

Each is contrasted with my peer group.

It is interesting to note that my “rational” answers indicated that retirement was my top priority. This answer is in alignment with my peer group, which also ranked retirement highest.

My investment portfolio ranked second, as it did for my peer group.

When looking at my “emotional” answers, the ones that the software produced, there is a slightly different picture. Retirement ranked fifth emotionally for me and sixth for my peer group.

Apparently, my peers and I aren’t emotionally worried about retirement at this time.

On the other hand, in my case, my emotional response to the investment portfolio ranked second, the same as my rational response. My peers only ranked the investment portfolio fifth, and they ranked cash flow second.

Emotionally, cash flow ranked highest for me, but it only ranked fourth rationally.

The app includes other functionality. For those inclined to do so, they can share their results through email or social-media channels, such as Facebook, LinkedIn and Twitter.

They can also access information related to each of the listed priorities by clicking on hotlinks at the bottom of the report.

Assuming this information is accurate, it clearly can be of benefit to me and my advisor. It indicates that my rational side may worry about retirement, but that subject isn’t likely to keep me up at night.

Rationally, I don’t seem to be too concerned about cash flow, but perhaps I am subconsciously. That subject may keep me up at night.

From an advisor’s point of view, knowing this information can be extremely helpful because it can help the advisor protect my portfolio properly. Clients don’t like surprises, especially negative ones.

By understanding what my emotional triggers are, my advisor can better set expectations and position me, to the extent possible, to address my emotional need to prioritize cash flow.

Although the BNZ and emotionadvisor.com websites are both interesting and helpful, I suspect that they only scratch the surface of what is possible with this sort of technology.

Earlier, I discussed the difficulty in gauging a prospect’s or a client’s risk tolerance. Today, advisors generally present clients with a series of questions, and they provide their “rational” answers.

Advisors use these answers to create investment portfolios and financial plans for clients. Then, in times of financial stress, such as a serious market correction, advisors sometimes discover that a client’s risk tolerance is less than they indicated.

Some would argue that this happens because a client’s risk tolerance changes over time. Although there is some truth to this, it is also likely that in many instances, a client’s rational responses aren’t aligned with their emotional ones.

Tools such as the one offered by nViso may provide an opportunity to better understand the emotional aspects of a client’s relationship to risk.

Beyond risk tolerance, there could be all sorts of other applications for this type of technology, provided that the industry is comfortable with the methodology of nViso and other firms that are developing similar technologies. The underlying research looks solid and its applicability to the financial services industry appears obvious.

I am probably not the best equipped to determine just how accurate nViso’ s results are or whether its technology is the best available for financial services applications. I do, however, think that the potential benefits of EmotionScan technology could be significant and that they warrant further study.

Facial recognition and emotion analytics technology could potentially advance our understanding of clients’ attitudes toward risk, but further work may be required before this technology is widely accepted within the advisor community. There is a great deal of potential here, and it will be interesting to see what companies can capitalize on the potential by optimizing the technology to meet the needs of advisors and their clients.

Joel Bruckenstein, a Financial Planning columnist in Miramar, Fla., is co-creator of the Technology Tools for Today conference series and technology guides for advisors, including Technology Tools for Today’s High-Margin Practice. For more information, visit JoelBruckenstein.com.

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