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.

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.

Praise for Behavioral Finance for Private Banking "This book provides investment professionals with skills they need to help investors craft sensible portfolios that are suitable for the financial world as it is. The world we face is one in which investors have psychological needs that go beyond mean-variance efficiency, systematic biases that interfere with perfect rationality, and financial markets which do not efficiently impound information into prices. Readers of this book will come away with a set of tools that provide them with a competitive advantage when it comes to providing clients with realistic advice that is tailored to their situations." --Hersh Shefrin, Mario L. Belotti Professor of Finance, Santa Clara University "This book provides a long-needed connection between decision theory and finance theory while--and this is its strongest point--connecting with applications throughout. Its main novelty is the use of recent behavioural insights, where the authors are best equipped for this task because they are leading experts. It leads to much more realistic understandings of investors, inefficient markets without arbitrage corrections, optimal financial advices in private banking, and so on, bringing scientific insights into what could only be an art in the past. This book is a must for everyone interested in the practical relevance of modern finance." --Peter Wakker, Professor of Decisions Under Uncertainty, Econometric Institute of Erasmus School of Economics (ESE), Rotterdam "The ongoing fintech revolution is one of the major challenges of private banking. To master it, a thorough understanding of investor behavior is necessary. Behavioral Finance for Private Banking shows how scientific methods support practitioners in mastering the challenges of the next decade integrated in a convincingly smart advice process." --Marianne Wildi, CEO, Hypothekarbank Lenzburg "Exciting times beckon us as we now stand at the crossroads of multiple paradigm shifts. Take Tesla's self-driving car, which spurred the public's enthusiasm while the regulators acknowledge the need for a paradigm shift in traffic policies. The book Behavioral Finance for Private Banking is the Tesla of the Private Banking world. For decades, the industry grapples with the 'gut feel' to advise, using fear and greed to instigate regrettable decisions. The discipline offers predictive power to transform the entire wealth industry. In this new world, the financial auto-pilot is personalized to give the client a safe, enjoyable and cost-efficient ride." --Michael Gerber, CEO, 360F (Singapore) Pte Ltd

Praise for Behavioral Finance for Private Banking "This book provides investment professionals with skills they need to help investors craft sensible portfolios that are suitable for the financial world as it is. The world we face is one in which investors have psychological needs that go beyond mean-variance efficiency, systematic biases that interfere with perfect rationality, and financial markets which do not efficiently impound information into prices. Readers of this book will come away with a set of tools that provide them with a competitive advantage when it comes to providing clients with realistic advice that is tailored to their situations." Hersh Shefrin, Mario L. Belotti Professor of Finance, Santa Clara University "This book provides a long-needed connection between decision theory and finance theory while and this is its strongest point connecting with applications throughout. Its main novelty is the use of recent behavioural insights, where the authors are best equipped for this task because they are leading experts. It leads to much more realistic understandings of investors, inefficient markets without arbitrage corrections, optimal financial advices in private banking, and so on, bringing scientific insights into what could only be an art in the past. This book is a must for everyone interested in the practical relevance of modern finance." Peter Wakker, Professor of Decisions Under Uncertainty, Econometric Institute of Erasmus School of Economics (ESE), Rotterdam "The ongoing fintech revolution is one of the major challenges of private banking. To master it, a thorough understanding of investor behavior is necessary. Behavioral Finance for Private Banking shows how scientific methods support practitioners in mastering the challenges of the next decade integrated in a convincingly smart advice process." Marianne Wildi, CEO, Hypothekarbank Lenzburg "Exciting times beckon us as we now stand at the crossroads of multiple paradigm shifts. Take Teslas self-driving car, which spurred the publics enthusiasm while the regulators acknowledge the need for a paradigm shift in traffic policies. The book Behavioral Finance for Private Banking is the Tesla of the Private Banking world. For decades, the industry grapples with the gut feel to advise, using fear and greed to instigate regrettable decisions. The discipline offers predictive power to transform the entire wealth industry. In this new world, the financial auto-pilot is personalized to give the client a safe, enjoyable and cost-efficient ride." Michael Gerber, CEO, 360F (Singapore) Pte Ltd

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