Financial forecasting tool provider eValue FE is testing smileys to help advisers explain investment risk to clients. A new system shows a fund's volatility based on the likely level of return if an investor measured performance 100 times.
eValue FE founder Bruce Moss introduced the concept of stochastic forecasts to employees in defined contribution pension plans in 1993. In 2002 they launched the eValue engine for use in all areas of the financial industry.
Using smiley face icons, the new tool will show the number of likely instances the fund will increase in value substantially. It uses neutral faces to show the number of times it is likely to stay the same and sad faces for when the fund is likely to see a significant drop in value.
eValue FE says it has worked with behavioural finance experts to come up with the system. It is hosting the tool on its website and is asking for feedback from advisers on whether they feel the approach will help facilitate investment risk discussions with clients.
Moss says: “This type of approach has been tested in other fields but has not yet been used for communicating investment risk. We are keen to hear from IFAs and their clients.”