Customer profiling

Client profiling consists of identifying the characteristics of a client for adequate financial advice on their investments and, on the other hand, so that both the client’s financial and vital objectives are met. 

In recent years we have been able to observe rapid growth in financial culture by the world population. The increasingly demanding world of the financial sector and financial markets is causing many people to inform themselves and invest time and money to manage their investments, work and know the reason for the recent financial crisis .

As can be seen in the Inverco graph, the financial savings of Spanish families has been modified since 1995 and 2000 . As a result of many public sector privatizations, IPOs of many private companies and the high returns offered by the equity markets , money flows have been seen to change over the years. Investment in shares (identified with the red color – direct investment-), has been increasing remarkably, to which the investment funds have also been added (the yellow color -Collective Investment Institutions-)  .

 

The correct advice of a client is crucial, that is why it is necessary to be very clear about the following points to identify the type of client (conservative, moderate or aggressive) and their future needs. A multitude of variables must be taken into account, such as their previous experience in the financial markets, the time horizon of the investment or the importance of the objective to be achieved, among others.

  • Profitability requirements:the client’s investment objective must be taken into account. Investing savings for the first home is not the same as investing for retirement. In this case, a profitability objective must be set that is consistent with the situation in the financial markets and with the client’s objectives. For this, it must be taken into account if the client wants to have a continuous short-term income (once invested that the client is repaying amounts of money -like a salary-) or otherwise he wants to grow his capital in the long term.
  • Risk tolerance or aversion: in this case, it must be taken into account what is the maximum loss willing to bear, that is, the loss of purchasing power. Also, the maximum volatility of the returns (the risk to be assumed) must be taken into account . As a guide summary, the following financial assets serve as a guide:

 

  • Liquidity requirements:at this point, it is necessary to know exactly what liquidity needs the client will have in the short, medium and long term. It depends directly on the future needs of the money invested.
  • Investment horizon:the investment term must coincide with the investment recommendation that the commercial departments specify in the funds’ sheets. Typically, there is a wide range of investment funds that invest in different assets for different terms. It is therefore important to know in what period certain returns are expected to be obtained.
  • Legal considerations:sometimes forgotten by many people. Not buying arms companies, tobacco companies or companies that invest in certain countries may be examples of the legal or specific restrictions that the client may have.
  • Tax considerations:the economic-financial profitability is crucial to make a complete assessment. On many occasions fiscal reforms are approaching that can determine for good or bad the performance obtained. The client’s tax obligations must also be taken into account, or even if it compensates them to realize capital gains before or after the fiscal year.

 

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