STRATEGIC FINANCIAL MANAGEMENT

BEHAVIORAL FINANCE AT JP MORGAN

Submitted to:
Prof. Tuhin Banerjee
Submitted by:
S Bharat Kumar (13046)
Surya Prakash Hinduja (13116)

Behavioral finance is the study of how investors make decisions- and how these decisions affect the
stock market movements. Investors are humans, and humans are not perfectly rational. When they
buy on emotions, they not only jeopardize their own investment plans, but also create opportunities
for others in the markets.
JP Morgans behavioral finance:

Initial retail behavioral finance product 1992 United Kingdom

Launch in United Sates 2003

Highlights:

All five new products in top 20% of Lipper categories

Central role given to investor psychology in branding of the funds

Rationale:

Study, analyse and document behavioral biases among investors. This could create new
opportunities for investment managers, as not all investors are perfectly rational and this
creates opportunities for investment managers

Facts: United States Behavioral finance products

Launch: 2003

Total assets under management (AUM): $100 Million

By 2006 (3 Q)

Total AUM: $20 Billion

Worldwide (2006)

rd

$76 Billion

BRANDS:
JP MORGAN

Investments Bank
Mergers and Acquisitions
Capital raising
Restructuring
Risk management
Research
Proprietary trading
Market making
Asset Wealth Management
Private Bank Wealth management for clients worth more than $25 Million

Performance driver: Asset allocation as opposed to a single product. Asset

management delivered independent blocks, while investment managers at private
banks created portfolios.
Private Client Services Wealth management for clients worth more than $1 Million and
less than $25 Million.
Clients more focused on protecting and growing their assets for their immediate
family.
Asset management Developing financial products for retail and institutional investors,
as well as for private banks and Private client services
(a) Cash management
(b) Equity management
(c) Fixed income
(d) Private equity and real estate

JP MORGAN CHASE:

Treasury and Security Services

Payment
Collection
Liquidity and investment
Trade finance
Commercial card
Information solution to clients

CHASE

Commercial lending bank

Treasury services
Investment banking
Investment management
Card services
Retail financial services
Banking services and products
Checking and savings account
Credit
Commercial deposits
Home and auto loans
Insurance
Cash management

Asset mix:

Institutional clients: $481 Billion

Private Bank: $197 Billion
Retail: $169 Billion

Approaches to equity investments at JP Morgan

Behavioral platform
Research model platform
Manager driven platform

Investors take additional risk only when they are compensated by more returns Modern portfolio
theory
Behavioral biases emphasized by JP Morgan

Over confidence
Loss aversion
Disposition affect

Strategy implementation

Stock selection Qualitative and quantitative selection models

Portfolio construction maximizing exposure to the stocks with long value and long
momentum, and controlling overall risks and sector risks
Execution

Advising services

Understanding clients needs and wants

Needs: demographic
Wants: psychographic
Wealth signs
Good life
Artisans
Unplugged
Legacy
Wellville

Identification of wealth signs:

Advisors must ask clients a series of questions to gain insights into their profiles.
Keywords emerged from clients answers revealed their wealth signs
Passion based research:
Step 1: identification of clients wealth sigs and passion points
Step 2: incorporation of above information in customizing
Language Position strategies that are right for the client In a language they
understand and are motivate by.
Service identification of key service requirement for each wealth sign
Client reviews Putting to use the behavioral language and service skills at client
reviews to capitalize on applying a behavioral approach to client relationship. It
involves understanding clients investment base.

JP Morgan:
Strengths: Global financial firm with operations in more than 50 countries, assets of more than $1.3
Trillion

Threats: Competing asset management firms used similar investing principles. Some embracing
psychology and behavioral finance in retail market
Challenges and goals:
To continue the winning streak on a larger scale
They have been successful across Europe, and are expanding in US. Recently they entered
Japan.
To solidify JP Morgans behavioral finance brand with retail investors

Recommendations:

More emphasis should be laid in developing the product in emerging markets

Growing number of domestic investors (institutional as well as retail) in emerging
markets is a positive sign
Aggressive marketing to improve market share in United States
Market penetration is of much importance in United States where the investors are
much more financially educated compared to other parts of the world. Firm could save a
significant amount as there would be no requirement for spending related to product
awareness and financial literacy.
More emphasis to be laid on Private Client Services in the emerging markets
PCS caters wealth management services to clients worth more than $1 Million and less
than $25 Million
Initial costs for the firm would be high. However, firm could establish a strong root in the
emerging markets if it delivers result and could be having a huge loyal customer base
and a significant head start.