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This interesting article on the role emotions play in making sales revealed some fascinating insights that savvy advisors can utilize.
The role of emotions
The article began by asserting that the decision whether or not to buy a certain item (or to use a particular advisor) is based primarily on emotion, not logic. However, it took this premise one step further. The article cited research using functional magnetic resonance imaging that found only 20% of the buying decision is based on logic. The remaining 80% is emotional.
The logical portion of our brain processes the pluses and minuses of a particular decision in a rational and objective way. The emotional part of our brain focuses on personal experience and feelings.
The role of “likeability”
What’s the primary emotional driver that will cause a prospect to react favorably to a proposal? According to research conducted by the American Research Foundation, "likability" is the chief factor affecting the ability of a brand to increase sales. The "likability" factor plays a similar role in the decision-making process that prospects employ when looking for an advisor.
Likability is a powerful personality trait. People perceived as having this quality attract others. Determining whether or not someone is likable has nothing to do with the merit of their proposal. It is solely based on emotion.
The role of “cognitive biases”
Extensive research has also demonstrated that, when confronted with a difficult decision, most people take mental shortcuts to avoid the tedious task of sorting out complex issues. These shortcuts are known as “cognitive biases.” People with these biases are often not aware of them. They believe they are acting rationally. But the research indicates otherwise.
By recognizing these biases at work, you can frame your offering in a way that accounts for them. Here's a summary of the most common:
The framing-affect bias
The way you present your value proposition can influence the reaction to it. There is evidence that framing a value proposition by emphasizing its negative consequences is more persuasive than focusing on its positive ones. One study found that a pamphlet stressing the negative consequences of not performing a monthly breast self-examination was more persuasive to women than a pamphlet emphasizing the positive benefits of doing so.
This research might cause you to reframe your offering. Instead of saying, "We can increase your expected returns," you might try, “Our focus on asset allocation can help protect you from devastating stock market losses caused by extreme volatility in the equities market."
The in-group bias
Why do investors ignore returns and continue to do business with hedge funds? It is clearly not because of the historical returns of the average hedge fund. Rather, this seemingly irrational behavior can be explained by an investor’s desire to be part of a small, select group. While they are not aware of this bias, they are exchanging lower expected returns for higher perceived social status.
You need to be aware of the in-group bias when discussing your offer. If you are an evidence-based advisor, you might say something like, "There are Nobel laureates in economics that advocate strategies similar to the way we are advising you to invest."
The status quo bias
The status quo bias is extremely powerful. Our brains seek shortcuts in order to avoid spending time making complex decisions, so we have built-in inertia that inhibits change.
Think of the leap of faith you are asking prospects to make by telling them that they should dump their current broker or advisor and use you instead. While they may be disappointed in some aspects of their existing relationship, it still feels safe and familiar to them.
One strategy for overcoming the status quo bias is to make the decision seem like less of a commitment. You could emphasize the fact that you are creating no long-term agreement. Consider telling the prospect they can try you and "see how it goes."
There are a number of other cognitive biases that can affect your prospects’ decision-making processes. While familiarizing yourself with all of these biases is helpful, the major takeaway is that the decision your prospect makes will be emotionally driven.
Decisions are largely determined by a prospect’s perception of your likability and various cognitive biases that permit a quick resolution.
Dan Solin is the director of investor advocacy for the BAM Alliance and a wealth advisor with Buckingham. He is a New York Times best-selling author of the Smartest series of books. His latest book is The Smartest Sales Book You'll Ever Read. He limits his sales coaching practice to advisory firms that advocate evidence-based investing.
Read more articles by Daniel Solin
