行为收益™理论

 

What is Behavioral Wealth Activation?

Family Wealth Creation

The process by which families creates wealth usually starts with a founder. The founder is often charismatic, gifted or exceptional in some way. By dint of personality the founder creates and grows a company that serves its customers well and becomes an institution in its own right.

But at some stage the founder either dies or undergoes a deterioration of health that prevents her from running the company. At that stage the question is who will be the successor to the founder. Usually but not always the choice will be to select someone inside the family. But often that person does not have many of the characteristics that made the founder so exceptional. That person can do a good job, but maybe not the same job as the founder.

If we could we would train the successor to develop the same characteristics and behaviors as the founder. Obviously, that does not happen often. But it would provide the right answer if it could be done. But this has never been done before because it has not been in the current state of the art. That is, the knowledge, disciplines and techniques had not yet been developed.

In this article we are going to show that the start of the art has now changed sufficiently to make it possible to provide some, if not all of the founders characteristic behaviors, to successors so that they can assume the mantle of leadership and continue the process of wealth creation.

Wealth Preservation versus Wealth Creation

Families that have a business or many businesses have two main aims. The first is to create more wealth. The second is to preserve the wealth they already have.

In practice, wealth creation is difficult. What enabled the founder to do it were exceptional and relatively rare behaviors, a great idea well executed, and some luck. As these are difficult to emulate, the wealth creation side of the equation is often not achieved. Most of the effort by companies that individuals that help family companies are focused on wealth preservation, with the hope that with some luck, they can manage a little wealth creation into the bargain.

But the wealth preservation part of the equation is not without its own risks. There are tens of thousands of companies all trying to do the same thing. This arbitrages most of the potential gains out of the results since if anyone finds a “sure” thing, everyone else jumps in and does the same thing.

We now understand that most investments don’t make money on their own merits. Most investments hover around an average return, which is the average return for the whole market, So the realistic aim for most wealth managers is to achieve the same return as the market. That is why ETFs are so popular. But the result is that most wealth management is about achieving wealth preservation, not real wealth creation.

The New Behavioral Techniques

Each of us has a propensity to create wealth. That propensity is governed by out innate and learned behaviors. Most people have never learned to connect with these behaviors because there wasn’t any recognized way to do it. Yet it is these behaviors that are possessed by the people who create products, companies and wealth and who become rich in the process.

Until recently there was no way to scientifically identify, measure and manage these behaviors. But in 2002 a Nobel prize was awarded to Daniel Kahneman for his development of the new discipline of behavioral economics. This discipline drops the assumption that economic and financial decisions are always made on rational grounds and instead substitutes the idea that many of our decisions are driven by irrational considerations. These considerations are almost always unconscious. Yet we usually believe that we are making rational decisions. These decisions are driven by unconscious cognitive biases.

The emergence of these new disciplines has, for the first time, given us a scientific framework and tools to be able to model the behaviors that create wealth. The tools also provide us with new ways to model those behaviors, show how they are linked with certain aspects of wealth creations, and reveals how we can use this information to help them change their behaviors such as to create wealth.

We have developed unique psychometric approaches based on behavioral economics and finance which link individual and team behaviors directly to financial and valuation outcomes. We have published several books and several hundred articles that reveal this framework and techniques. We will provide more detailed information and references later in the White paper. However, for the moment it is just sufficient to understand that we can identify and measure these behaviors scientifically and have done so in practice with thousands of people.

Perth’s assessments include:

  • The Financial Outcome Assessment (FOA)
  • The Executive Outcome Assessment (EXOA)
  • The Corporate Financial Outcome Assessment (CFOA).

Later we will show how these assessments manage to get the relative information on personal and team behaviors that allow us to predict what impact they will have on wealth creation. In particular they allow us to predict the financial and business outcomes of these behaviors, if necessary, in quantitative form, and in such a way as to predict the actual market value and even the market valuation that result from these behaviors.

Wealth Activation

Wealth activation is the process of applying these behavioral techniques to individuals and teams in a company in order to achieve real wealth creation. By “real” we mean an increase in capital value that materially exceeds the average market return that is typical of wealth preservation investing.

The wealth activation process includes:

  1. Identifying executives and family members whose who have strong profit-making behaviors.
  2. Showing them how to improve their financial impact using behavioral techniques.
  3. Building a pipeline of people with strong profit potential for succession planning purposes.

We need to understand the following about the wealth activation process:

  1. It is not training in finance, economics or accounting.
  2. It is not about how to engineer numbers to provide an “enhanced” perspective of the value of the company.
  3. It is a map of the behaviors that create wealth
  4. It shows innate behaviors and compare them with learned behaviors
  5. It reveals how to change learned behaviors to make them more aligned with the financial mission of the company
  6. It shows what direction and magnitude these behavioral changes need to be to achieve the desired financial mission
  7. It shows that is possible and likely to achieve and what might not be possible and likely
  8. The aim is to create s cultural process of change which is sustained over the longer-term
  9. We call this process “Continuous Valuation Management” or CVM.
  10. The ultimate aim of wealth activation is not just behavioral change on the part of individuals and team members; it is also a change to the culture of the company such that wealth activation becomes a n Intrinsic part of the culture which by its very nature will push the company int the direction of maximizing its value beyond its current limits.

 

 

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