Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
Jiu-jitsu is a gentle art. Instead of meeting force with greater force, skilled practitioners use their opponent’s force against them. Advisors can learn a lot from this principle.
We are all familiar with the behavioral finance research demonstrating that investors possess a number of biases that influence their decisions, including whether or not to hire a particular advisor. Understanding these biases and using them to your advantage will optimize your close rate.
Here are some common biases and recommended strategies for making them work for you:
Ingroup bias
We have a tendency to believe that people who are similar to us in ethnicity, religion, social status and profession are more likable and trustworthy.
You can use this bias to your advantage. If you have a choice between equally qualified advisors, consider having the advisor in your office with the characteristics most like your prospect represent your firm at the meeting.
I recently had an experience that validated this advice. A client of my coaching practice had a young, but very professional, advisor meet with a couple that was nearing retirement. Following the meeting, the prospects decided to retain another firm.
My client asked the prospects if they would consent to be interviewed by me in order to get a better understanding of the basis for their decision. They agreed. They told me that they met with the senior vice-president in charge of wealth management at another firm. They thought this firm “took them more seriously.”
This couple was influenced by ingroup bias. They found it easier to relate to someone their own age.
Confirmation bias
Confirmation bias reflects a tendency to seek evidence that confirms pre-existing beliefs and to ignore contrary facts. Investors who are convinced that they can “beat the market” through stock picking, market timing and fund-manager selection are unlikely to be dissuaded by evidence showing passive investing will likely yield higher expected returns, regardless of the data presented.
I have often seen proponents of passive investing pile on studies, books and related material in an often fruitless effort to change a prospect’s mind. By doing so, they are ignoring the powerful role of confirmation bias.
Instead, try this: Focus on the other services your firm provides (such as tax planning, retirement planning and estate planning) and minimize the role of your investment philosophy. By doing so, you are making it easier for your prospect to make the decision to retain you. He can rationalize the decision by telling himself he is hiring you because you offer broad services, without compromising his belief about the best way to invest.
Illusion of control bias
The illusion of control bias refers to our tendency to believe we can control events that are actually unknowable. I most commonly see this bias with successful people. Often, because they have been successful in their careers, they believe they have a special insight into the future.
Because the stock market is random and unpredictable, it is challenging to deal with prospects who want assurances that they will not be confronted with unanticipated events affecting their investments.
An effective strategy for dealing with these prospects is to focus on those factors that they can control, such as their asset allocation, the costs and fees they incur and tax deferral or avoidance strategies. It’s also helpful to present them with long-term data showing the best and worst periods for portfolios similar to the one you are proposing.
Prospects who exhibit illusion of control bias will generally not respond well to a lecture about what can’t be predicted. Instead, work within the constraints of this bias by telling them what can.
Instead of trying to overcome biases, learn from jiu-jitsu practitioners. Use the force of these biases to your advantage.
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
Jiu-jitsu is a gentle art. Instead of meeting force with greater force, skilled practitioners use their opponent’s force against them. Advisors can learn a lot from this principle.
