NTUST IM AHP Case Study 2 Identifying key factors affecting consumers' choice of wealth management services: An AHP approach

NTUST IM Outline 1. Introduction 2. Literature review 3. Data collection and methodology 4. Results 5. Conclusion and discussion

NTUST IM Introduction Wealth management (WM) is a professional service which is the combination of financial / investment advice, accounting / tax services, and legal / estate planning for one fee. This study may lead to a better understanding on the following questions: Do the priority weights of the high-net-worth customers present a different pattern? What should the WM service providers focus on when they try to meet the needs of their target-clients?

NTUST IM Introduction We surveyed the relative importance of factors, including the image, the products, and the quality of service, by directing a questionnaire to consumers who are using or planning to use WM services.

NTUST IM Wealth management 2. The Analytical Hierarchy Process (AHP) Literature review

NTUST IM Data collection and methodology Using convenience sampling, there were 209 usable questionnaires. Researchers waited for the subjects to complete the questionnaires. Thus, the response rate (69.67 percent) is relatively high.

NTUST IM Data collection and methodology The following table displays the sample distribution. n% SexMale Female Age20 – – – – EducationHigh Scholl or under College / University or above Financial BackgroundWith Financial Background Without Financial Background Net Assets (NT$) 1 < (Assets － Debts) 1 – Annual Income (NT$) <

NTUST IM Methodology We adopt AHP method for ranking the factors affecting consumers’ choice of WM services. The AHP method used in this study is a three-step process. 1. the decision problem is decomposed into a hierarchy map of interrelated criteria. 2. the input data related to each criterion is generated by pair-wise comparisons of the criteria based on a nine-point weighting scale. The nine-point scale has been the standard rating system used for AHP.

NTUST IM Methodology 3. the weight of each criterion in each level of the hierarchy is computed using the eigenvalue method Figure 1. The hierarchical structure of the decision making problem Selection of WM Service Providers ProductsImage Quality of Service Sub- Criteria Level 2 Level 3

NTUST IM Methodology Criteria and sub-criteria

NTUST IM Methodology Considering that the investor attributes may influence the priorities of the criteria, the subjects’ investor attributes are classified by four dimensions: the risk bearing, the returns taking, the product-familiarity, and the investing habit, which are established by 13 questions using a 5-point Likert scale.

NTUST IM Methodology Factor analysis is adopted as an exploratory tool to classify respondents into groups with similar investing characteristics and habits. Exploratory factor analysis is commonly used to uncover the underlying structure of a relatively large set of variables.

NTUST IM Results ─ Investment characteristics In the basic investment characteristics section of the questionnaire, the respondents were asked to rank their first three financial information sources.

NTUST IM Results ─ Investment characteristics Panel A reveals that the two main sources for financial information are print media (47 respondents) and financial institutions (35 respondents), followed by the Internet, TV, and radio. Only 9 respondents rank relatives or friends as their main financial information resource. The respondents also rank the top three financial instruments in their assets allocation.

NTUST IM Results ─ Investment characteristics

NTUST IM Results ─ Investment characteristics Mutual funds (42 respondents) and stocks (40 respondents) appears most frequently among the respondents’ top three choice for asset allocation, followed by deposits (35 respondents) and insurance (34 respondents). Only few respondents allocate most of their assets to bonds, gold, foreign exchange, and trust.

NTUST IM Results ─ Investment characteristics

NTUST IM Results ─ Investment characteristics Panel C to E present the investment characteristics of the full sample, of the respondents with financial background, and respondents without financial background.

NTUST IM Results ─ Investment characteristics The distribution of the proportion of expenditure is exhibited in Panel D. Living costs take up the largest proportion of the expenditure, followed by investment spending, education loans, and travel. The ranking of the proportion of expenditure is similar for respondents with and without financial background. Panel E shows the distribution of the investor attributes.

NTUST IM Results ─ Investment characteristics

NTUST IM Results ─ Priority weights in the AHP decision trees In investigating the factors which could affect the consumers' choice of WM services, this study considered: image, products and quality of service. we find that “quality of service” is the most influencing factors in the selection of WM service provider. Among the four sub-criteria related to “quality of service”, “confidentiality” is the most important consideration, followed by attitude, convenience, and communication, in the order of their weights.

NTUST IM Results ─ Priority weights in the AHP decision trees In addition to using the full sample to compute the weights of factors influencing the choice of WM services, subsamples characterized by several investor characteristics – gender, financial background, net assets, annual income, and investor attributes – which might affect the weights are also used to analyse the data in more detail.

NTUST IM Results ─ Priority weights in the AHP decision trees he results indicate that the ranking of the criteria is not affected by gender or whether the respondents have financial background or not. Difference can only be found in a few sub-criteria under “quality of service” and “image”.

NTUST IM Results ─ Priority weights in the AHP decision trees The last three columns show the priority weights by investor attributes – active, moderate, and conservative investors. As expected, active investors consider “products” as the most significant criterion and emphasize on “returns” of “products”. Moderate and conservative investors show similar preference: considering “quality of service” the most important factor.

NTUST IM Results ─ Priority weights in the AHP decision trees The result shown in next page’s table indicates that special attention should be paid to “products” if high net worth customers are the target of the WM service provider. “Risk” factor is especially important to these customers. “Popularity” and “recommendation” seem to be the least important factors in their decision process.

NTUST IM Results ─ Priority weights in the AHP decision trees Panel A: Weight between the criteria / Weight within the criteria Criteria Full Sample MaleFemale With Financial Background Without Financial Background Net Assets < Net Assets 1 Net Asserts + Annual Income < Annual Income + Active Moderat e Conservativ e Image Recommendati on Professional Morality Reliability Popularity Products Risk Returns Fees Diversification Quality of Service Attitude Communication Confidentiality Convenience

NTUST IM Results ─ Priority weights in the AHP decision trees Panel B: Ranking between the criteria / Ranking within the criteria Criteria Full Sample MaleFemale With Financial Background Without Financial Background Net Assets < Net Assets 1 Net Asserts + Annual Income < Annual Income + Active Moderat e Conservativ e Image Recommendati on Professional Morality Reliability Popularity Products Risk Returns Fees Diversification Quality of Service Attitude Communication Confidentiality Convenience

NTUST IM Conclusion and discussion This research makes an important first step toward understanding the consumers’ decision process and influencing factors in the selection of WM services.

NTUST IM Conclusion and discussion Care must be taken in interpreting or generalizing the findings. First, the convenient sample used in this study may not be representative of the entire population. Although special attention had been paid to consider the possible influence of various consumer attributes, a larger and more representative sample may be needed to confirm and generalize the results before they can be applied in practice.

NTUST IM Conclusion and discussion Second, other factors such as culture difference may limit the applicability of the results in other countries. Failure to consider cultural differences between countries has been the cause of many business failures. In this regard, further studies are necessary to determine the generalizability of the findings to other cultures.

NTUST IM Conclusion and discussion Future research may extend the current study by including more countries in the analysis. The results obtained with consumers in Taiwan might guide other similar research conducted in emerging markets, especially in China and neighbouring Asian countries.

NTUST IM Thanks for your attention!