The Model Office Blog

Model Office, RegTech and The Endowment Effect

[fa icon="calendar"] Jan 28, 2020 11:13:49 AM / by Chris Davies

If we worked together in the same office and I offered to make  you a cup of coffee and presented you your own cup you have brought in from home or a clean office cup, which one would you choose? It’s pretty obvious you would choose your own cup, why? Because you own it off course, it’s yours! But it's just a coffee cup..

This scenario is known as the Endowment effect, a behavioural bias that was unearthed by social scientists who found that people are more likely to retain an object they own than acquire the same object when they do not own it. In other words, we have a bias that can highly value something that we own, far more than if we don't own it.

This is a powerful proposition when it comes to business strategy and compliance. One of the biggest challenges for compliance standards is consistency and engagement. Model Office provides a Regulatory Audit Diagnostic where firms benchmark where they believe they sit against key regulations and policy. The results and associated data become their own, nobody else’s and thus we find firms value their own scores highly and buy-in to the fact that if it appears they score poorly then they want to improve their compliance scores.

Cash flow modelling, Client portals and Attitude to risk tools work in a similar way. Once client’s see tangible results then they own them, do not want to lose them and will want to improve as necessary.

In essence items with positive symbolic, experiential or emotional significance tend to move us to want ownership and thus loss aversion then plays its part.

Obviously, we need to ensure the technology and associated algorithms are professionally designed. Thus, this means advice firms should design and implement a robust research and due diligence process around employing the right technologies within their business.

When it comes to Model Office and RegTech, the system offers 6 dashboards to allow firms to view how well they are scoring and action plans to highlight what needs focus and what resources and individuals are required to move forward. This showcases accountability across governance, risk management and compliance. Something the regulator will applaud particularly with the Senior Managers and Certification Regime (SM&CR) in play. Indeed, we launched a Human Resource Development dashboard that allows adviser firms to audit and assess their HR strategies which are now very much part of the compliance cycle. The system also has Firm financial strength, Compliance, Client and Stakeholder Engagement, Service and Investment proposition and Systems and Controls dashboards along with a compliance chatbot so advice firms gain all the data they need.

Model Office's integration with Intelliflo also showcases endowment theory, with our client data health check ensuring firms take accountability for the quality of their data in their practice management client data activities.

We are finding that firm’s want to improve their compliance scores, they want to showcase when they are beating the benchmarks and scoring well and commit to meet any blind-spots or weaknesses across their gamified, heat mapped dashboards.

With the SM&CR firms now need to employ evidence-based practice that they have the right people in the right roles with the right skills and responsibilities. They also need to show ownership, consistency and commitment to their compliance journey, RegTech can do this by using the endowment effect in a positive way.

Please click the below icon link to MO®'s #RegTech platform and learn more about MO® today..

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Topics: Financial regulation, Financial business development, fintech, regtech, Risk management, practice management, FCA, advice, HMT, suitability, FAWG, FAMR, MiFIDII, SMCR, Data, GDPR, Chatbot, Culture, Enforcement, supervision, audit, Conduct, AI, Risk,, Accountability, Platforms, PROD, Product governance, digital,, Regulatory, Reporting, HRD, Endowment-theory

Chris Davies

Written by Chris Davies

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