OpRisk Awards 2016
Financial services clients, it turns out, often don't know what they want. Unfortunately, neither do their wealth management advisers, despite several hours of conversations and questionnaires designed to tease out their attitudes to risk and loss.
"For frontline staff, trying to know their customer is the biggest challenge they face," says Bernard Del Rey, chief executive of UK-based financial technology company Capital Preferences. "And we're asking them to operate with no scientific diagnostic tools – it's like asking your doctor to do an MRI scan from a conversation."
Existing methods rely on discussions and questionnaires that can produce answers bearing no relation to clients' actual preferences or which generate contradictory findings. Not only is the process time-consuming and inefficient, but it also opens up financial services providers to the risk of legal action for mis-selling or otherwise failing to act in a client's best interests.
The entire regulatory environment is designed to protect people who are poor decision-makers. The problem is, neither the providers nor the regulators know who they are
Bernard Del Rey, Capital Preferences
"The entire regulatory environment is designed to protect people who are poor decision-makers," says Del Rey. "The problem is, neither the providers nor the regulators know who they are."
The solution developed by Capital Preferences is deceptively simple. Its Economic Fingerprint product uses a series of basic games to tease out a client's "revealed preferences" in terms of their attitude to the trade-offs between risk versus return, today versus tomorrow and themselves versus others. These games, which take less than 10 minutes to complete, provide a highly confident measure of the decision-making quality of the subject, allowing the provider to either match the client efficiently with appropriate products or understand they need to spend additional time ensuring their needs are properly understood.
The product had its genesis in a client request to the consulting company run by Del Rey, who has a background in investment marketing, including stints in senior positions at JP Morgan and Morgan Stanley. "They were trying to reach ‘opportunistic' investors, so we were trying to work out how to find these people," he recalls.
Some research into the latest academic thinking on the subject led Del Rey to Shachar Kariv, chair of the economics department at the University of California, Berkeley, and one of the world's leading experts on game theory and decision theory.
"I read some of his work. What caught my eye was a very robust mathematical method, but he had literally no idea that this was a problem he could solve – that was the beauty of it," Del Rey says.
Since their first meeting in 2013, Del Rey has been working with Kariv to develop the product. The company is collaborating with a handful of major government and multilateral clients on research and development projects, and has made its first few sales, including one to a large Australian bank. The product has also been recognised in several competitions, garnering second place in the UBS Global Future of Finance Challenge, out of 600 financial technology firms, and becoming a finalist in the 2015 Citi Mobile Challenge APAC.
Del Rey is now raising money to expand the business. "It's definitely early days," he says, before reeling off a list of financial services giants that the company is in discussions with. "But it's exploding with opportunity at the moment."