DNA Behavior Behaviorally Smart Compliance Management for Financial

DNA Behavior® Behaviorally Smart Compliance Management for Financial Services Firms www. financialdna. com

Featured Host DNA Behavior – Financial DNA • Hugh Massie CEO, Founder Hugh. Massie@dnabehavior. com www. linkedin. com/in/hughmassie • Tripp Rockwell Hugh Massie Chief Marketing Officer tripp. rockwell@dnabehavior. com www. linkedin. com/in/tripprockwell Tripp Rockwell www. financialdna. com

Today’s Webinar Objectives • Predict Compliance Risks triggered by Behavior • Identifying Investor Suitability Risk • KYC through a multi-dimensional Behavioral Discovery Process • People Insights at All Stages of the Client. Centered Lifecycle www. financialdna. com

DNA Behavior Makes People Insights Practical Digital Delivery of Behavioral Intelligence Firm Wide Match advisory teams, clients, goals and solutions for suitability We provide financial services businesses worldwide with a single cloud based “Reg. Tech” platform which delivers practical and scalable behavioral intelligence solutions to “Know, Engage and Grow” every advisor, employee and client online for delivering a higher level of suitability. The outcome is the building of a clientcentered business which is compliant and out-performs. www. financialdna. com

DNA Behavioralizes Money for Advisors and Clients Predicting Compliance Risks Triggered by Behavior www. financialdna. com

What is Getting in the Way of Client-Centered Success? Research: Lack of Behavioral Suitability From the First Interaction 1. Advisors can only engage 40% of their clients, leaving 60% under serviced 2. 85% of complaints start with poor advisorclient communication 3. 5% of advisors are potentially rogue costing 5% of revenue in losses/claims 4. Advisors are only 40% accurate in identifying the client risk profile 5. Investor emotions causing 7. 45% per year portfolio under-performance 6. Advisor/Investment Manager biases causing under-performance by 1% to 3% per year 7. Firm/advisor centered culture leads to fundamental biases in solutions offered – tied to old ways of operating www. financialdna. com

The Fundamental Causes of Investor Suitability Risks The Issues are More Than Client Behavior Rogue Advisor Behavior: Pressure, lack of insight, awareness and EQ overinfluencing the outcome and poor communication Emotional Client Behavior: Mis-alignment of objective financial and subjective behavioral factors Investor Suitability Risks www. financialdna. com Greedy Firm Behavior: Revenue and remuneration model driving poor portfolio and advisor choices and service culture.

Current US Regulatory Environment Strengthening FINRA and DOL Fiduciary Regulations FINRA Rules 2090 + 2111 “Know Your Customer” and “Suitability” DOL Fiduciary Rule “Your Clients Interests First” Technical Regulatory Compliance Know and Retain, Essential Facts…Reasonable Basis…Reasonable Diligence…Analyze Customer Specific Factors… Overall Quantitative Suitability www. financialdna. com

Global Regulatory Avalanche Driving the Need to Take Action Now Investor Suitability is the No 1 Source of Complaints Globally The regulatory trend is fast moving towards making investor suitability and acting in clients best interests the highest priority starting with a deeper level of behavioral insights to “know your client”. 1996 to 2010 Traditional Fact Finds, Limited Monitoring www. financialdna. com 2011 to 2016 Risk Profiles (Ability and Willingness to Take Risk), Behavioral Biases Heavy Complaint Based Monitoring Post 2016 Client Interests First, Firm Culture and Attitude Review SEC/FINRA resources increased by 20% in 2016

“Tick the Box” Compliance Does Not Provide Legal Protection The Action Needs to be Preventing Suitability Complaints Suitability complaints start with a combination of poor communication, low trust in the advisor, poor decisions on both sides and an overall lack of behavioral management at key points of the client life-cycle. Regardless of whether the advisor has “technically” made a suitable recommendation or not, the practical situation needs to be addressed: 1. Poor “bedside” manner and hiding information elevating client anger 2. Mis-management of heightened client emotions and advisor fear 3. Lawyers digging to find a process not followed or details not disclosed 4. Reasonable basis being easily argued against by lawyers 5. Heavy financial and time costs once a complaint is made 6. Terminal brand damage www. financialdna. com

Managing the Growing Regulatory Compliance Avalanche Behavioral Management Grows Relationships and Minimizes Risk Client Protection, Engagement, Experience and Retention - 23% Revenue Uplift Costly Complaints and Litigation – 99. 75% Investor Suitability www. financialdna. com

The DNA Process For Firm Engagement and Compliance People Insights at All Stages of the Client-Centered Lifecycle Advisory Firm and Team Culture Behavioral Monitoring & Coaching Real-Time Behavioral Management Goals Based Planning & Reviews www. financialdna. com Initial Connection & Meetings

DNA Compliance Program Elements Managing the Risks of Advisor and Client Behavior Advisor Management (Plan) Using BDNA and CDNA Identify: • Rogue advisor behaviors • Fit for role • Organizational mapping • Advisor-client match Advisor EQ development Customized org communication www. financialdna. com Know Your Client (Discovery) Using FDNA Customized meeting prep to style Holistic financial personality insights, covering all risk elements Greater disclosure Deeper and more consistent client inquiry Goals Based Planning (Solution) Using FDNA Portfolio Design: • Matching risk profile to goal buckets • Behavioral IPS and solutions tied to goals, financial capacity, risk • Aligning goals to spending patterns Annual Quality Life Review Client Management (Execute) Using FDNA Monitor Real. Time : • Portfolio adjustments • Advisor behavior • Client interactions Behavioral coaching Advisor performance measurement

Compliant KYC Discovery Process Incorporating Financial DNA Measurement Traditional – Objective Factors • Wealth (Net worth) • Annual Income, • Tax Status • Employment Stability • Time horizon, Liquidity • Spending Patterns • Demographic Factors -age • Financial Goal Needs/Objectives • Financial Capacity • Investment Experience, Knowledge • Education, work experience www. financialdna. com Financial DNA – Subjective Factors • Communication and Learning Style • Purpose Based Goals (Needs and Wants) • Risk Profile (including Risk Propensity, Tolerance, Loss Aversion, Preference, Composure) Style • 16 Behavioral Biases influencing decision-making style Goals Based Planning • In-depth client inquiry and interactive discussions • Structure for advisor to make professional judgement • Risk Profile development based on objective and subjective factors • Allocation of risk profile to different goal buckets • IPS to guide decisions

The Next Gen Business Model Based on Direct Client Participation in KYC Behavioral Discovery Active Client Participation to Boost Engagement and Accuracy Active Behavioral Management by Advisor www. financialdna. com Financial DNA delivers the world’s most robust KYC process through: Customized Client First &Compliant Service Experience 1. A highly accurate, reliable and scientifically validated financial personality discovery process which is “fit for purpose”; 2. Completion by each participating investor; and 3. Recommended goalsbased planning processes which utilize the financial personality insights with active client and advisor interaction.

The Compliance Strength of Financial DNA Evaluated as the Platinum Standard of KYC The Regulators globally adopt a principles based approach to compliance and do not prescribe specific tools and methodologies. Notwithstanding, Financial DNA meets the guidelines of the following regulators as a “fit for purpose” and “best practices” process for KYC and Investor Suitability: USA – FINRA, SEC Canada – OSC UK-FCA Netherlands - AFM Australia – ASIC In addition, the Finance and Technology Research Center in the UK gave Financial DNA a “ 5 Star” Rating in 2012 for its psychometric strength. www. financialdna. com

Financial DNA® = Financial Personality Multi-Dimensional Behavioral Discovery www. financialdna. com

The Traditional Risk Profiling Methodologies Leave you in the Dark in Key Areas Your ideal client How to Communicate Email, Phone, or Meeting? + more Risk Profile www. financialdna. com Hard Wired Behavior Loss Aversion Pattern Bias Over Confidence Spending + more

Meeting the Behavioral Challenge With Financial DNA Identifying All Of The Behavioral Risks Limited Investment Management Approach Investment $ Relationship Behavior Risks Holistic Financial Planning Approach www. financialdna. com Navigating Different Financial Personality Risks to Achieve Quality Life Goals Investment Behavior Risks Financial Behavior Risks 19

The Power of Implementing Financial DNA From 40% Advisor Accuracy to 99. 75% Investor Suitability Completion by Each Advisor + Team 91% Reliability from Financial DNA Measurement Completion by Each Client www. financialdna. com Reduced Subjective Advisor Judgement 8. 75% Enhancement from Financial Planning Processes Minimized Advisor + Client Emotions 99. 75% Investor Suitability Performance Guarantee

Your Financial Personality Brain The Drivers of Imperfect Decision-Making 95% Natural DNA Behavior (Level 1 – Instinctive, Automatic, Hard-wired) 5% Learned Behavior (Level 2 – Conscious thinking based on experiences, education, values) Emotional Stimuli (Fear, Anxiety, Greed, Excitement) Triggered by Money and Relationships www. financialdna. com Cognitive Biases (Driven harder by Emotions) Imperfect Decision. Making

Re-Positioning the Discovery Starting Point to Natural DNA Hard Wired Behavior Financial Personality Discovery: Situational Learned Behavior Skills Knowledge Experiences Environments Financial DNA Natural Behavior Discovery Skills Knowledge Experiences Environments www. financialdna. com Document, Monitor, Communicate, Educate Behavior Gap The Unique DNA Starting Point for Enhanced Predictability Instinctive Automatic, “Go To” Style Document, Monitor, Communicate, Educate Financial Personality Discovery: Situational Learned Behavior

Suitability Requires Consideration of Many Risk Factors The Key Elements of Financial DNA Risk Profile Discovery Key Investment Risk Elements Individually Measured Terminology Definitions FDNA Natural Behavior Discovery (Level 1 – Automatic, Instinctive, Hard -Wired) FDNA Financial Personality Discovery (Level 2 – Learned Situational Behavior Based on Experiences, Education, Environment) Risk Need Risk required to meet financial goals FDNA IPS +Financial Planning Software Risk Capacity Financial ability to endure the risks of portfolio losses FDNA IPS +Financial Planning Software Risk Propensity Willingness to take risk Yes Risk Tolerance Willingness to live with losses Yes Loss Aversion Likelihood to maintain investments in down markets and not crystalize losses - Extent upset/emotional losing money more than making it Yes Risk Composure How client will behave in a crisis FDNA Market Mood Yes - Financial EQ Risk Perception/ Product Perception Judgement about severity of risk in current climate Inherently not measured as client gut feel Risk Preferences Personal evaluation of risk preference No Yes Aggregate of the above factors for FDNA IPS + Client Conversation www. financialdna. com Risk Profile

Client’s Natural Behavior Portfolio Risk Group Based on Risk Propensity and Risk Tolerance For those who should take no risk and be in cash www. financialdna. com

Building the Plan and IPS – Summary of Clients Selected Portfolio Risk Aligned to Goals, Capacity Your Assessment of the Client’s Current Portfolio Risk Profile Group Your Assessment of the Client’s Portfolio Risk Need Group to Achieve Goals Your Assessment of the Client’s Portfolio Risk Group based on Current Financial Risk Capacity Financial DNA Natural Behavior Portfolio Risk Group (based on Risk Propensity and Tolerance) Financial DNA Learned Behavior Portfolio Risk Group (From Financial Personality Discovery or Advisor’s Assessment of the client) Overall Selected Portfolio Risk Profile Group (Selected by Advisor and Client based on discussion of the aggregate of all scores) www. financialdna. com

Building a Behavior Centered Portfolio With the Client Mutually Agreeing the Overall Risk Profile Approach: 1. Do not set the Risk Profile higher than the Risk Need (to achieve the goals). 2. Build the portfolio within +/- 1 Grouping of the Natural Behavior Portfolio Risk Profile Group as it reflects the long term “go to” default behavior. Subject to: (i)Review the client’s Risk Need (to achieve goals) and Risk Capacity (financial ability) (ii)The client’s Learned Risk Behavior Motivations (experiences, education, environment) One Portfolio Risk Grouping Group 1 Group 2 Group 3 Group 4 Group 5 Group 6 Group 7 Pop. % in this category <2% 2 -18% 19 -30% 31 -69% 70 -81% 82 -98% >98% Portfolio Structure Capital Protection Ultra. Conservative Balanced Accumulation Growth Aggressive www. financialdna. com Acceptable Conservative Portfolio Acceptable Aggressive Portfolio

Case Study: Clients in Pre-Retirement Planning Demonstrating Different Risk Profiles Key Investment Risk Elements Individually Measured Jack Sun (Initiator – Food Franchise Entrepreneur) Helen Jones (Engager Style – Dinner Party Investor) Craig Moon (Relationship Builder Style – Tech Biz Founder) Peter Madden (Strategist Style – Do-It Yourself Investor) Advisor Assessment of Current Portfolio Risk Group 6 6 4 7 Client Assessment of Current Risk Preference 5 5 4 5 Risk Need to Achieve Goals 6 6 3 5 Risk Capacity to endure the risks of portfolio losses 4 3 5 5 Natural Behavior Portfolio Risk Group (Propensity and Tolerance) 5 4 3 4 Loss Aversion likelihood to maintain investments in down markets and not crystalize losses 6 4 3 5 Learned Behavior Portfolio Risk Group (Environment, Experiences, Education) 4 6 2 5 Overall Risk Profile based on aggregate of the above factors for achieving goals 5 4 3 5 www. financialdna. com Risk Profile to Risk Need Difference Gap -1 -2 0 0

Compliance Monitoring Program Managing Risks of Advisor and Client Behavior Advisor-Performance Management Review Influence of Advisor Behavioral Biases on Solutions Offered Real-Time Portfolio Exception Reporting www. financialdna. com Inadequate Advisor Performance in Following KYC and Firm Processes Compliance Monitoring Program Plan and Portfolio Mis-Alignment In-depth KYC System including Financial Personality Discovery Process Clients Misunderstanding Solutions and Negative Relationship Energy Advisor-Client Matching and Client Satisfaction Reviews

Outcome: A Compliant and Client Centered Business Model Built on Matching Clients to Advisors and Solutions Offered Team With Lack of Behavioral Insight Financial DNA Discovery System to Know, Engage and Grow Employees and Clients Matching Advisors and Clients for 4 in 4 Engagement ? ? ? Tailored Communication Suitable Solutions ? Default Styles =1 in 4 Engagement and High Compliance Risk www. financialdna. com DNA Data available real time in CRM and Business Management Software Source: Gallup Organization 2009 and DNA Behavior Research 2001 -2014 23% Revenue Uplift and Brand Protection

Behavioral Finance Resources –. Tour and featured upcoming Webinar http: //financialdna. com/behavioral-finance-resources/ • Our focus here at DNA Behavior in 2016 is “active engagement of the client”. In order to truly provide a fiduciary role an Advisor needs to know their client. . • In the USA our governing body FINRA and the DOL are moving in that direction to strengthen the active engagement to ensure that clients are receiving suitable guidance. www. financialdna. com

Contact Us For more information about Financial DNA contact: DNA Behavior International 5901 -A Peachtree Dunwoody Rd Suite 375 Atlanta, GA 30328 (866( 791 -8992 ext 703 leon. morales@dnabehavior. com www. financialdna. com • Follow us on Linked. In: Financial Personality Insights and/or Financial DNA on Twitter • Behaviorally SMART Financial Planning can be found on Amazon https: //www. amazon. com/Behaviorally-SMART-Financial-Planning. Behavioral/dp/1532855133/ • Read our blogs on the latest trends and solutions at http: //blog. dnabehavior. com/ www. financialdna. com

Financial DNA® Delivering Financial Personality Insights “Behavioralizing” Financial Planning Match advisory teams, clients, goals and solutions Since 2001, we have been enhancing the capability of financial services businesses worldwide to “know, engage and grow” millions of investors by the delivery of unique Financial DNA behavioral finance insights data using our scalable behavioral fintech platform. The proven outcome is a clientcentered business which is compliant and out-performs. www. financialdna. com