Behavioral Finance for Private Banking

An essential framework for wealth management using behavioral finance Behavioral Finance for Private Banking provides a complete framework for wealth management tailored to the unique needs of each client. Merging behavioral finance with private banking, this framework helps you gain a greater understanding of your client s wants, needs, and perspectives to streamline the decision making process. Beginning with the theoretical foundations of investment decision making and behavioral biases, the discussion delves into cultural differences in global business and asset allocation over the life cycle of the investment to help you construct a wealth management strategy catered to each individual s needs. This new second edition has been updated to include coverage of fintech and neurofinance, an extension of behavioral finance that is beginning to gain traction in the private banking space. Working closely with clients entails deep interpersonal give and take. To be successful, private banking professionals must be as well-versed in behavioral psychology as they are in finance; this intersection is the heart of behavioral finance, and this book provides essential knowledge that can help you better serve your clients needs. Understand the internal dialogue at work when investment decisions are made Overcome the most common behavioral biases and watch for your own Learn how fintech and neurofinance impact all aspects of private banking Set up a structured wealth management process that places the client s needs front and center Private banking clients demand more than just financial expertise. They want an advisor who truly understands their needs, and can develop and execute the kind of strategy that will help them achieve their goals. Behavioral Finance for Private Banking provides a complete framework alongside insightful discussion to help you become the solution your clients seek.

An essential framework for wealth management using behavioral financeBehavioral Finance for Private Banking provides a complete framework for wealth management tailored to the unique needs of each client. Merging behavioral finance with private banking, this framework helps you gain a greater understanding of your client's wants, needs, and perspectives to streamline the decision making process. Beginning with the theoretical foundations of investment decision making and behavioral biases, the discussion delves into cultural differences in global business and asset allocation over the life cycle of the investment to help you construct a wealth management strategy catered to each individual's needs. This new second edition has been updated to include coverage of fintech and neurofinance, an extension of behavioral finance that is beginning to gain traction in the private banking space.Working closely with clients entails deep interpersonal give and take. To be successful, private banking professionals must be as well-versed in behavioral psychology as they are in finance; this intersection is the heart of behavioral finance, and this book provides essential knowledge that can help you better serve your clients' needs.* Understand the internal dialogue at work when investment decisions are made* Overcome the most common behavioral biases--and watch for your own* Learn how fintech and neurofinance impact all aspects of private banking* Set up a structured wealth management process that places the client's needs front and centerPrivate banking clients demand more than just financial expertise. They want an advisor who truly understands their needs, and can develop and execute the kind of strategy that will help them achieve their goals. Behavioral Finance for Private Banking provides a complete framework alongside insightful discussion to help you become the solution your clients seek.

Chapter 1 Introduction 1Chapter 2 Behavioral Biases 52.1 Information Selection Biases 62.2 Information Processing Biases 112.3 Biases after Receiving Feedback 312.4 Are More Heads Smarter Than One? 332.5 Summary of Biases 352.6 Conclusion 39Chapter 3 Cultural Differences in Investors' Behavior 413.1 What Is Financial Culture? 413.2 The INTRA Study 433.3 Conclusion 46Chapter 4 Neurological Foundations and Biases' Moderation 474.1 The Human Brain 474.2 Insights for Behavioral Finance 484.3 Moderation of Biases 494.4 Conclusion 50Chapter 5 Diagnostic Tests for Investment Personality 515.1 A Case Study 515.2 Design of Diagnostic Questionnaires 525.3 Knowledge and Investment Experience 535.4 Psychology and Emotions 595.5 Client's Diagnostic Profile 65Chapter 6 Decision Theory 696.1 Introduction 696.2 A (Very) Short History of Decision Theory 706.3 Expected Utility 736.4 Mean-Variance Analysis 766.5 Prospect Theory 786.6 Rationality of Mean-Variance and Prospect Theory 876.7 The Optimal Asset Allocation 916.8 Comparing the Decision Theories 1026.9 Conclusion 103Chapter 7 Product Design 1057.1 Introduction 1057.2 Case Study 1077.3 Theory of Product Design 1147.4 Structured Products Designed by Customers 1207.5 Conclusion 123Chapter 8 Dynamic Asset Allocation 1258.1 Time Diversification 1268.2 Rebalancing 1298.3 Conclusion 134Chapter 9 Life-Cycle Planning 1379.1 Case Study 1379.2 Case Study Werner Bruni 1399.3 Consumption Smoothing 1409.4 The Life-Cycle Hypothesis 1419.5 The Behavioral Life-Cycle Hypothesis 1439.6 Conclusion 146Chapter 10 Risk Profiling 14710.1 Risk-Profiling Methodologies 14810.2 Comparing Risk-Profiling Methodologies 15110.3 A Case Study 15210.4 The Risk Dimensions 15310.5 Behavioral Risk Profiler 15510.6 Risk Profiling and Its Regulation 16610.7 Conclusion 167Chapter 11 Structured Wealth Management Process 16911.1 Benefits 17211.2 Implementation 17311.3 Regulatory Requirements 17411.4 Structuring the Wealth Management Process 17711.5 Relevance of Different Theories 19611.6 Complying with the Regulatory Requirements 19711.7 Information Technology in Client Advisory Services 197Chapter 12 Fintech 20112.1 History of Fintech 20112.2 Current State of Fintech 20112.3 Assessment of Fintech Solutions 202Chapter 13 Case Studies 20313.1 Case Study 1: Structured Wealth Management 20413.2 Case Study 2: Experience Sampling 20913.3 Case Study 3: Goal-based Approach 210Chapter 14 Conclusions 219Chapter 15 Appendix: Mathematical Arguments 22115.1 Proof that Expected Utility Satisfies the Axioms of Rational Choice 22115.2 Derivation of the Fourfold Pattern of Risk Taking 22215.3 Mean-Variance as a Special Case of Prospect Theory 22215.4 Prospect Theory Optimal Asset Allocation 22415.5 No Time Diversification Theorem 225References 227Index 235