5 April 2010

Financial advisers using psychometric tests

Psychometric testing is becoming increasingly popular in the finance world as advisers and wealth managers seek to establish their clients' attitude to risk and return.

Traditionally advisers have used simple multiple-choice questions, but now industry experts claim that the approach is ineffective because clients don't assess their own personalities accurately.

Marcus Carlton, director of wealth management company HFM Columbus, is reported as saying that most people fall somewhere in the middle range, as relatively medium-risk investors.

But that doesn't necessarily reflect how they will react to specific circumstances, he told the Moneywise website.

Carlton is one of a growing number of advisers beginning to make use of psychometric tests - which are usually used as a recruitment tool - for clients interested in probing their subconscious attitudes to financial decisions and their capacity to manage risk.

Psychometric tests aim to explore the key personality traits likely to shape a client's responses. In terms of financial planning, important traits include emotional stability, openness, conscientiousness and compliance.

The Risk Compass test used by HFM Columbus comprises quick-fire responses to 142 brief statements that can be completed in about five minutes.

According to Moneywise, other firms that have introduced psychometric tests include Barclays Wealth, Cotswolds-based Broadway Financial Planning and Fortitude Financial Planning in Northamptonshire.

 

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