Many advisors have had the disappointing experience of “regretted acquisition.” They meet a new prospective client and go through the careful process of discovery and fact finding and create a proposal for engagement. After several meetings and hours of work, they are at the finish line: All they need to do is stop talking and let the new engagement naturally close.
In that moment something strange happens: In spite of seeing all sorts of buying signs, the advisor feels compelled to offer a discount of her fee in order to insure a successful “close.” Of course, the new client is more than happy to accept the lower price for the services they were going to buy anyway.
What’s going on here?
The Role of the Advisor’s Beliefs About Pricing
Every experienced advisor has developed a set of beliefs about the price that clients, in general, are willing to pay. These beliefs are deeply entrenched and seep all the way down into the emotions of every advisor. They are formed from their earliest experiences (both good and bad) with clients. Importantly, a few bad experiences with clients who demand steep discounts or who are never satisfied with the advisor’s services can deeply impact that young advisor’s beliefs about pricing.
These beliefs show up in fascinating ways. I recall debriefing a colleague who was working in a large financial institution some years ago. He was doing direct, hands-on coaching with advisors about the way they priced their services, trying to help them establish a premium price for what he believed was a superior level of services provided by the firm. To discover why so many advisors were struggling with pricing, he monitored live calls that advisors were having with prospective clients.
One call stands out as exemplary of his experience. An advisor was in the late stages of the originating process with a new prospective client. My colleague was monitoring the call as the advisor summarized the services he was proposing and then described the fee:
“…and the fee for all of this is 1 percent,” he said confidently.
“1 percent?” the new client replied, clearly feeding back what he had heard for confirmation. But, that’s not what the advisor heard.
“Well, for you I can do it for 75 basis points…” the advisor responded.
My colleague was stunned. He was listening to the call live, as it happened, and he was certain that all the client was doing was clarifying the fee that the advisor had proposed. The advisor didn’t hear clarification, he heard the client questioning the fee because his beliefs defined the world in which he lived. He believed that the client was seeking a discount. Same call, but two very different experiences.
Beliefs Define Our World and Are Very Hard to Change
Beliefs are incredibly powerful in their ability to define the quality of our life and our flexibility in our business. Henry Ford described the power of beliefs most efficiently: “Whether you think you can, or think you can’t, you’re right.” The power of beliefs rests in the fact that they are necessary for a human being to cope with the world. Understanding this necessity reveals some ways in which we can alter our beliefs and improve our experiences.
For human beings, surviving and prospering in a complicated and challenging world is hard work. There isn’t enough time to learn about every danger and opportunity that we may encounter—the world is simply too complicated to accurately map every possible situation. To cope with this complexity, the human brain uses simplifications and shortcuts that are “good enough.” Each of us takes a few sample experiences and then generalizes those results into a set of beliefs about the world. This is especially true when we find ourselves in a new and unfamiliar situation.
This means it’s natural—even inevitable—that when a new advisor starts having experiences with clients, she will build a set of beliefs about what is true. Of course, this “truth” is an accidental product of a small sample of experiences that is in no way a reflection of the larger reality in which those experiences are embedded. As a result, many advisors have taken a few unfortunate experiences they had in the early days of their work as an advisor and have generalized them into a set of beliefs about the way all clients function.
Perhaps It’s Time to Change Your Mind?
The good news is that beliefs can be changed. The bad news is that it isn’t easy. This is because beliefs form the primary coping mechanism for how our brain makes sense of the world. In an important way, our beliefs are our most prized possession because they work well enough to allow us to survive and prosper. Even in the presence of compelling evidence that a belief is flawed, the brain will cling to it tenaciously. It feels emotionally threatening to change a belief.
Everyone has had the experience of watching a person comfortably handle a snake or a large spider. Our eyes see that the animal is harmless, but our beliefs scream more powerfully, “That’s dangerous—don’t touch it!”
This provides a key insight into a simple way to change your beliefs: Look for evidence that the belief you want to change is not an accurate reflection of the world, and then intentionally behave in the way you think will be more effective in spite of the negative feelings your brain stimulates inside you. If you are afraid of snakes and want to change that belief, find a person with a harmless snake and desensitize your feelings multiple times. You can cure any phobia this way, by systematic desensitization. Psychologists have been doing this successfully with their clients for years, and you can do it quite effectively on your own.
The key is to decide on a belief that will be more effective for you, and then behave “as if” it was true for you. Over time your brain will start processing the new experiences, see that the results you are getting are better, and begin to embrace the new behavior as a reflection of the world. Eventually you will reprogram a new belief to replace the old one. And your brain will take over the new behaviors automatically once they become beliefs.
What Does This Have to Do with Being a Financial Advisor?
Harboring ineffective or self-limiting beliefs is inevitable. We all maintain beliefs that are not useful because they do not provide an accurate picture of the way the world works. Some of us have more limiting beliefs and some of us have fewer, but we all operate according to an impoverished model of the world that our brain built from a few, select experiences. For most of us, our model works well enough. Nevertheless, everyone can benefit from refining the model they are using and building a new, more accurate set of beliefs.
The good news is that the brain is constantly building and rebuilding its model of the world. My colleague sat down with his client and played the tape and then described how his model of the world allowed him to hear a completely different conversation than the advisor had experienced. The advisor was shocked and asked to listen to the tape again. They listened to it together several times until he started to question his assumption about clients and pricing.
By actively questioning his belief, the advisor could now decide to “borrow” a more effective belief about clients and pricing from his coach. He constructed a new model of the world and experimented with it. This generated new experiences, which allowed him to determine if he liked those outcomes better.
It only took a few experiments to reveal that most clients were totally comfortable with the 1 percent fee and were excited to work with him. He also discovered that those who were seeking a steep discount were people who had their own beliefs that would never allow them to appreciate the quality of service he was providing no matter what he did.
The result of his experiments? Over time his new beliefs helped him build a more satisfying and manageable business.
A message from Advisor Perspectives and VettaFi: To learn more about this and other topics, check out some of our webcasts.
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