Behavioural Profiling, a business opportunity for the advisor

As a well-known saying goes, “not all evil comes to harm.” This also applies to the new MiFID 2 regulations, for the financial sector, and IDD 21, for the insurance sector, which have introduced stricter rules for intermediaries since 2018, in particular by requiring them to have their customers periodically fill out a long profiling questionnaire under the slogan “Know your customer, know your products”.

A bureaucratic hassle? Yet another task to be carried out just to avoid sanctions? Quite the opposite: the MiFID and IDD questionnaires – as well as an investor protection tool – are actually a gold mine for advisors. At a time when information is wealth, in fact, financial companies have a huge advantage over many other sectors: the data voluntarily released by clients is an excellent basis for profiling, providing a “financial DNA” of the investor, based on objective information such as family situation, economic and financial conditions, possession of certain assets, exposure to certain risks.

By reviewing and integrating this data – with the help of a good dose of technology – the consultant can easily identify the specific financial needs of the individual client, whether explicit or latent. And thus offer them the products and services they need, using the right arguments and ways to “win them over”. Let’s see how.


Discovering our customers

To begin with, it must be said that the data contained in the profiling questionnaires are precious, but incomplete: having a distinctly objective character, they should be a bit “humanized”.

In fact, we know that the investor never acts in a totally rational way, but is guided by a series of behavioural, social and psychological factors. These factors can go so far as to blind the investor, even preventing him or her from seeing a need (for example, for insurance cover) that objectively exists.

This is where Behavioural Profiling comes into play, a client profiling technique that focuses on mental, emotional and socio-cultural aspects2. In the financial industry, Behavioural Profiling identifies the socio-cultural and psychological traits that influence the perception of clients’ needs and objectives, as well as the mechanisms of use of financial and insurance services.

What are we talking about?


The case of Giorgio

Let’s try to explain it with a concrete example. Giorgio is 37 years old, married and has two small children. He works in a consulting company where he is hired with a regular permanent contract, has a good salary and owns a house in Milan. His wife, on the other hand, is a freelance professional, but works only occasionally, because at the moment she prefers to devote herself to her children. Giorgio is not interested in finance at all and keeps all his savings in a deposit account. So far the purely objective data shows a number of financial needs – for example a life insurance policy, an accumulation plan for children and why not a supplementary pension fund. Everything straightforward? Not exactly.

Deepening the analysis of the client, thanks to a targeted questionnaire proposed by the bank, it emerges that from an emotional-behavioral point of view Giorgio has a pragmatic but not too far-sighted attitude which, combined with a lack of financial education, makes him consider the CAP and insurance superfluous. Among other things, he does not want to think about the possibility of dying or getting sick – he is young and does not want to bring bad luck by insuring himself against such extreme events. However, he is very attached to his family: becoming a father has triggered a very strong instinct of protection.

Aware of all of this, Giorgio’s consultant is leveraging on this last aspect: he starts talking about the importance of insurance to protect his children, so as not to leave his family in financial difficulties in the unfortunate case of his untimely death – with some crude but objective statistics on deaths due to accidents and illnesses. He also points out to him how saving a few dollars will enable his children to study or start a small business when the time comes. This is the right key, Giorgio is convinced: he takes out life insurance and an accumulation plan for his children.


Bottom line

Summing up the concept that emerges from the example, we can say that: the more data we have available, the more we are in a position to truly understand the needs of those who are in front of us. The objective information contained in the profiling tests required by law is an excellent starting point, but it is not enough.

Okay, but how do we actually obtain data of a psychological-behavioral nature?

If you are curious about the topic, find out how to apply the logic of Behavioural Profiling to your business processes by requesting our White Paper at the link below.

Find out more

1 – The IDD Directive: an opportunity, only if you can seize it
2 – Behavioural Profiling: an emotional intelligence tool for modern advisors