Behavioral Finance for Private Banking (eBook)

From the Art of Advice to the Science of Advice

Kremena K. Bachmann, Enrico G. De Giorgi, Thorsten Hens (Autoren)

eBook Download: PDF

2018 | 2. Auflage
John Wiley & Sons (Verlag)
978-1-119-45373-4 (ISBN)

Infos

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.

KREMENA BACHMANN is senior research associate at the University of Zurich, senior lecturer at the Zurich University of Applied Sciences (ZHAW) and academic advisor at Moor & Bachmann AG, a Swiss multi-family office. As a behavioral finance researcher publishing in peer-reviewed journals she is also actively engaged in the development of practical solutions that help to improve financial decision making.

ENRICO DE GIORGI is professor of mathematics and director of the institute of mathematics and statistics at University of St. Gallen. He is also associate editor of Mathematics and Financial Economics and Decisions in Economics and Finance and founding partner of BhFS Behavioral Finance Solutions. His research has been published in the top peer-reviewed journals in Finance and Management.

THORSTEN HENS is a professor of financial economics and a member of the directorate of the department of banking and finance at the University of Zurich. He is a founding partner of BhFS Behavioral Finance Solutions, Swiss Fintech Innovations and the University of Zurich Research Priority Program on financial regulation, Finreg. He is a coauthor of 60 peer-reviewed scientific publications and seven books.

Inhalt

Cover 1
Title Page 5
Copyright 6
Contents 7
Chapter 1: Introduction 13
Chapter 2: Behavioral Biases 17
2.1 Information Selection Biases 18
2.1.1 Attention Bias 18
2.1.2 Selective Perception Based on Experience 19
2.1.3 Confirmation Bias 20
2.1.4 Availability Bias 22
2.2 Information Processing Biases 23
2.2.1 Representativeness Bias 23
2.2.2 Conservatism 25
2.2.3 Gambler's Fallacy 27
2.2.4 Hot-Hand Bias 28
2.2.5 Anchoring 30
2.2.6 Framing 31
2.2.7 Overconfidence 33
2.2.8 Present Bias 35
2.2.9 Probability Weighting 36
2.2.10 Reference Point and Loss Aversion 37
2.2.11 Mental Accounting 37
2.2.12 Myopic Loss Aversion 38
2.2.13 Narrow Framing 39
2.2.14 The Disposition Effect and the House-Money Effect 40
2.2.15 Affinity 41
2.2.16 Regret Aversion 41
2.3 Biases after Receiving Feedback 43
2.3.1 Hindsight Bias 44
2.3.2 Self-Attribution Bias 44
2.3.3 Outcome Bias 44
2.4 Are More Heads Smarter Than One? 45
2.4.1 Confirmation Bias in Groups 46
2.4.2 Representativeness Bias in Groups 46
2.4.3 Overconfidence in Groups 46
2.4.4 Gender Composition of Groups 47
2.5 Summary of Biases 47
2.6 Conclusion 51
Chapter 3: Cultural Differences in Investors' Behavior 53
3.1 What Is Financial Culture? 53
3.2 The INTRA Study 55
3.3 Conclusion 58
Chapter 4: Neurological Foundations and Biases' Moderation 59
4.1 The Human Brain 59
4.2 Insights for Behavioral Finance 60
4.3 Moderation of Biases 61
4.4 Conclusion 62
Chapter 5: Diagnostic Tests for Investment Personality 63
5.1 A Case Study 63
5.2 Design of Diagnostic Questionnaires 64
5.3 Knowledge and Investment Experience 65
5.3.1 Relative Returns of Assets Classes 65
5.3.2 Short-Term Loss Potential of Asset Classes 67
5.3.3 Contribution to Investment Performance 68
5.3.4 Diversification of Equity Portfolios 70
5.4 Psychology and Emotions 71
5.4.1 Attractiveness of High Returns 71
5.4.2 Relevance of Information Sources 73
5.4.3 Emotional Trading 74
5.4.4 Selling Decisions 76
5.5 Client's Diagnostic Profile 77
Chapter 6: Decision Theory 81
6.1 Introduction 81
6.2 A (Very) Short History of Decision Theory 82
6.3 Expected Utility 85
6.4 Mean-Variance Analysis 88
6.5 Prospect Theory 90
6.6 Rationality of Mean-Variance and Prospect Theory 99
6.7 The Optimal Asset Allocation 103
6.8 Comparing the Decision Theories 114
6.9 Conclusion 115
Chapter 7: Product Design 117
7.1 Introduction 117
7.2 Case Study 119
7.2.1 Product Description 119
7.2.2 Product Evaluation 122
7.3 Theory of Product Design 126
7.4 Structured Products Designed by Customers 132
7.5 Conclusion 135
Chapter 8: Dynamic Asset Allocation 137
8.1 Time Diversification 138
8.2 Rebalancing 141
8.2.1 The Case for Rebalancing 142
8.2.2 The Case Against Rebalancing 142
8.3 Conclusion 146
Chapter 9: Life-Cycle Planning 149
9.1 Case Study 149
9.2 Case Study Werner Bruni 151
9.3 Consumption Smoothing 152
9.4 The Life-Cycle Hypothesis 153
9.5 The Behavioral Life-Cycle Hypothesis 155
9.6 Conclusion 158
Chapter 10: Risk Profiling 159
10.1 Risk-Profiling Methodologies 160
10.2 Comparing Risk-Profiling Methodologies 163
10.3 A Case Study 164
10.4 The Risk Dimensions 165
10.5 Behavioral Risk Profiler 167
10.5.1 Investment Goals 167
10.5.2 Investment Amount and Investment Horizon 168
10.5.3 Expectations 169
10.5.4 Experience, Knowledge, and Constraints 170
10.5.5 Attitude toward Losses 170
10.5.6 Attitude toward Uncertainty 171
10.5.7 Investment Temperament 172
10.5.8 Portfolio Construction 173
10.5.9 Reporting 176
10.6 Risk Profiling and Its Regulation 178
10.7 Conclusion 179
Chapter 11: Structured Wealth Management Process 181
11.1 Benefits 184
11.2 Implementation 185
11.3 Regulatory Requirements 186
11.3.1 Registration 187
11.3.2 Retrocessions 187
11.3.3 Key Investors Information Document (KIID) 187
11.3.4 Documentation 188
11.3.5 Risk Ability 188
11.3.6 Risk Tolerance 188
11.3.7 Product Suitability 188
11.4 Structuring the Wealth Management Process 189
11.4.1 Needs Analysis 189
11.4.2 Risk Ability: Personal Asset and Liability Management 190
11.4.3 Risk Awareness 194
11.4.4 Risk Tolerance 197
11.4.5 Portfolio Construction 199
11.4.6 Investment Style 199
11.4.7 Documentation and Reporting 200
11.4.8 Monitoring 202
11.4.9 Goal-Based Investing 202
11.5 Relevance of Different Theories 208
11.6 Complying with the Regulatory Requirements 209
11.7 Information Technology in Client Advisory Services 209
Chapter 12: Fintech 213
12.1 History of Fintech 213
12.2 Current State of Fintech 213
12.3 Assessment of Fintech Solutions 214
Chapter 13: Case Studies 215
13.1 Case Study 1: Structured Wealth Management 216
13.2 Case Study 2: Experience Sampling 221
13.3 Case Study 3: Goal-based Approach 222
Chapter 14: Conclusions 231
Chapter 15: Appendix: Mathematical Arguments 233
15.1 Proof that Expected Utility Satisfies the Axioms of Rational Choice 233
15.2 Derivation of the Fourfold Pattern of Risk Taking 234
15.3 Mean-Variance as a Special Case of Prospect Theory 234
15.4 Prospect Theory Optimal Asset Allocation 236
15.5 No Time Diversification Theorem 237
References 239
Index 247
EULA 257

Produkt-Details

• Erscheint lt. Verlag: 10.5.2018
• Reihe/Serie: Wiley Finance
• Reihe/Serie: Wiley Finance Editions
• Reihe/Serie: Wiley Finance Editions
• Sprache: englisch
• Themenwelt: Recht / Steuern ► Wirtschaftsrecht
• Themenwelt: Wirtschaft ► Betriebswirtschaft / Management ► Finanzierung
• Schlagworte: Applied Psychology • Asset Allocation • behavioral finance framework • behavioral finance introduction • behavioral finance textbook • client management • client needs • client relationships • Finance & Investments • finance psychology • Finanz- u. Anlagewesen • Finanzwesen • FinTech • investment decision making</p> • <p>behavioral finance • Neurofinance • neurofinance framework • practical psychology • Private Banking • private banking framework • private banking methods • private banking techniques • private banking training • Private Wealth Management • Wealth Management • wealth management framework
• ISBN-10: 1-119-45373-9 / 1119453739
• ISBN-13: 978-1-119-45373-4 / 9781119453734