Modeling psychology in Islamic wealth management

Abstract

This research studies the role of psychology in developing Islamic wealth management. Incorporating psychology into finance significantly contributes to our understanding of the individual investors behavior as well as the market behavior. The divergence between the ideality and reality of Islamic wealth management shows an urgent need for a reconciliation between the two. Utilizing the findings of behavioral finance and financial therapy along with the industry megatrends, Islamic wealth management could step further in fulfilling its ultimate objective of promoting social welfare. This is can be achieved by exploring and identifying the psychological factors that affect the clients decision-making and then helping the clients behaviorally and cognitively to engaging in socially-responsible investments, projects and initiatives. In operationalizing this model, financial advisors/wealth managers should adopt a comprehensive client discovery and profiling method and should make use of some Fintech innovations in producing complex analytics and enriching the client experience. Quantitative method is adopted through distributing survey questionnaires to experts specializing in finance, economics and psychology. The findings were analyzed through descriptive and inferential analysis. Results indicate that the psychology-driven disciplines of behavioral finance and financial therapy, from an Islamic perspective, can significantly contribute to meeting client`s needs as well as social welfare. Client discovery and profiling incorporating Fintech innovations can also play a notable role in operationalizing the proposed model.