Tech review: Is FinaMetrica worth a look?

Mark Loosmore of AT8 Group meets Geoff Davey, creator of the FinaMetrica Psychometric Risk Profiling system.

FinaMetrica was launched back in 1998 by Geoff and his business partner Paul Resnik. Paul and Geoff, both practitioners in the Australian financial planning market, looked at financial planning as information processing.

They held the belief that there were fundamentally three types of information that the adviser needed: hard facts (salary, assets, liabilities etc.), firm facts (goals, situation etc.) and soft facts (likes, dislikes, attitude, feelings and tolerance). While advisers were busy collecting the hard and firm facts, the softer information was often overlooked, despites its direct effect on the advice needed. To address this shortfall, Paul and Geoff decided to start building a psychometric profiling system with the help of the Applied Psychology unit at the University of New South Wales, to analyse the Risk Profiles of the public.

Following four years of successful trading in Australia, FinaMetrica launched in the US in 2002 and entered the UK in 2004. As we write this article they now operate in 13 countries and 7 languages. Since inception it has completed 400,000 risk profiles which in itself provides a wealth of data which three separate universities in Australia are now poring over to analyse trends in risk attitude.

Geoff was keen to point out there are three types of risk advisers seek to understand:

• Required Risk (that risk needed to meet the goals)
• Risk Capacity (the ability to sustain under performance)
• Risk Tolerance

FinaMetrica aims to help understand the third of these only and it partners with others such as Truth, PlanPlus and most recently Voyant to address the first two areas. While FinaMetrica believes that the system is best used inside financial planning software, it was designed for use on a stand-alone basis and FinaMetrica provides guidance on working with any planning process which leads to an investment.

To measure the risk tolerance, FinaMetrica uses a questionnaire comprising 25 questions. The number of questions they use is noticeably more than the majority of questionnaires used in the market today – typically between 10 and 15 questions. FinaMetrica use the larger number of questions firstly to improve the accuracy and reliability of the outputs but also to gain more ‘soft’ information to help the adviser build a clear picture of the client. It also believes that using more questions dilutes the effect of a specific answer being influenced by a particular experience, mood or miss-interpretation.

I took the opportunity to run through the questionnaire myself and found it took about 10 to 15 minutes to complete. The questions were well structured and the usability of the system was high. Geoff says clients would be happy to spend 15 minutes to ensure their investment portfolios matched their risk profile.