Psychometrics: Measuring Unseen Client Characteristics
Psychometrics is the science and practice associated with the measurement of human characteristics. These are often referred to as “unseen” individual characteristics, including cognitive ability, personality, and knowledge. Typically, psychometricians are borne out of applied psychological and educational fields. Psychometrics has been used for over a century in a variety of fields for decision-making, counseling and coaching, and self-assessment, including, but not limited to:
- Clinical psychology and psychiatry
- Educational measurement
- Human resources, primarily for personnel selection, promotion, leadership development, and training
Psychometric Assessments in Financial Services
Psychometrics has been used in the financial services industry to assess individual characteristics related to money personality, investor risk tolerance, and financial literacy. Likewise, psychometrics has been used by psychologists and counselors working with individual clients experiencing clinical issues related to money impacting other aspects of their lives. Planners, therapists, or coaches can use assessment results to guide, educate, or coach clients in specific areas. Behavioral coaching is becoming more of a fundamental part of the holistic practice associated with financial planning,[2] and with this rise comes the use of psychological assessments as part of the coaching process to focus efforts on areas that will ultimately lead to improving client opportunities for financial success.
Why Psychometrically-Sound Matters
Advisors and coaches should use the best client discovery tools possible. Best practices in the field require psychometricians to meet The Standards for Psychological and Educational testing when creating commercially available assessments. Effective tests are typically referred to as “psychometrically-sound,” or those that have demonstrated validity and reliability evidence. While this might seem excessive to require, client discovery tools that have been carefully crafted can provide relevant and actionable advice to their clients. Psychometrics may be used to help individuals understand their behaviors, attitudes, and personalities related to money in general. Tests can also help clients engage in the behaviors that will allow them to be financially successful in the future.
Ultimately, psychometric tests can provide information to the advisor that can be used to communicate effectively, provide coaching and guidance, and serve the client beyond the understanding of psychological risk tolerance. For example, the Financial Perspectives test gives financial professionals a tool to understand client attitudes about budgeting, spending, and investing. The advisor can use a client’s score to personalize the interaction and ongoing client experience based on how the client feels about each area. Suppose the test lacks reliability (the client receives different scores each time she takes it) or validity (the test doesn’t quite measure what it says it’s measuring). In that case, the results will be inaccurate, and the client experience will suffer.
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Additional Resources: Collins & O’Rourke, 2012; Dubofsky & Sussman, 2009; Sussman & Dubofsky, 2009