Know Your Clients' Behaviours: A Cluster Analysis of Financial Transactions

Posted: 9 Jun 2020

See all articles by John R.J. Thompson

John R.J. Thompson

University of British Columbia - Okanagan Campus; Financial Wellness Lab at Western University

Longlong Feng

Wilfrid Laurier University

R. Mark Reesor

Wilfrid Laurier University; University of Western Ontario

Chuck Grace

University of Western Ontario - Richard Ivey School of Business

Date Written: May 7, 2020

Abstract

In Canada, financial advisors and dealers are required by provincial securities commissions and self-regulatory organizations--charged with direct regulation over investment dealers and mutual fund dealers--to respectively collect and maintain Know Your Client (KYC) information, such as their age or risk tolerance, for investor accounts. With this information, investors, under their advisor's guidance, make decisions on their investments which are presumed to be beneficial to their investment goals. Our unique dataset is provided by a financial investment dealer with over 50,000 accounts for over 23,000 clients. We use a modified behavioural finance recency, frequency, monetary model for engineering features that quantify investor behaviours, and machine learning clustering algorithms to find groups of investors that behave similarly. We show that the KYC information collected does not explain client behaviours, whereas trade and transaction frequency and volume are most informative. We believe the results shown herein encourage financial regulators and advisors to use more advanced metrics to better understand and predict investor behaviours.

Keywords: Machine Learning, Clustering, Behavioural Finance, Financial Advising

JEL Classification: D14, C14

Suggested Citation

Thompson, John R.J. and Feng, Longlong and Reesor, R. Mark and Grace, Chuck, Know Your Clients' Behaviours: A Cluster Analysis of Financial Transactions (May 7, 2020). Available at SSRN: https://ssrn.com/abstract=3595433 or http://dx.doi.org/10.2139/ssrn.3595433

John R.J. Thompson (Contact Author)

University of British Columbia - Okanagan Campus ( email )

2329 West Mall
Vancouver, British Columbia BC V6T 1Z4
Canada

HOME PAGE: http://www.researchgate.net/

Financial Wellness Lab at Western University ( email )

1151 Richmond Street
Suite 2
London, Ontario N6A 5B8
Canada

Longlong Feng

Wilfrid Laurier University ( email )

75 University Ave W
waterloo, ontario N2L 3C5
Canada

HOME PAGE: http://https://www.linkedin.com/in/longlongfeng/

R. Mark Reesor

Wilfrid Laurier University ( email )

75 University Ave W
waterloo, ontario N2L 3C5
Canada

University of Western Ontario ( email )

1151 Richmond Street
Suite 2
London, Ontario N6A 5B8
Canada

Chuck Grace

University of Western Ontario - Richard Ivey School of Business ( email )

1151 Richmond Street North
London, Ontario N6A 3K7
Canada

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