Any advisor who has spoken to a client knows the frustration of making a well-reasoned recommendation only to have the client ignore it. On a webinar for the Excel 401(k) 2020 Digital Series, Sheri Fitts, president and founder of ShoeFitts Marketing, explained some of the science behind those illogical behaviors and shared ways that advisors can overcome these emotional, sometimes unconscious, objections.
“We spend a lot of time in financial services speaking to people’s prefrontal cortex, and we’re missing the point,” according Fitts said. “We really do need to speak to their limbic brain because that’s the place where they make decisions.”
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She continued, “I think that we speak to the prefrontal cortex because we still believe that logic rules decision making and that we’ve not been given the language to speak to somebody’s limbic system.”
Advisors who are having trouble overcoming client objections should remember these six obstacles.
Overconfidence bias. Clients overestimate their own abilities and trust that the decisions they’re making are the right ones, even if evidence suggests otherwise.
“When we think about our decisions, we believe that we’re doing it right,” Fitts said. “This overconfidence bias also plays into our ability to make investment decisions, because a lot of us think we’re smarter than the average bear.”
Inertia. Also called “status quo bias,” inertia keeps clients locked into their current habits.
“I want you to think about the fact that when we ask somebody to save in their 401k plan, we are asking them to overcome a series of locked-in inertia moments,” she said: deciding to save, determining an amount to save, and finding a place to save.
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Choice overload. Fitts recounted a well-know study about consumer behavior wherein shoppers encountered a tasting booth with either six or 24 jams. The shoppers who were presented with fewer choices were far more likely to make a purchase.
“In some cases, some committees want to put every single fund possible into a plan because they don’t want to be wrong,” Fitts said.
Framing. The way that advisors present a choice, by focusing on the positives or the negatives, affects the way that clients interpret it, according to Fitts.
Recency bias. Individuals weight recent evidence more heavily than older evidence.
“If you’ve experienced something such as a market drop [recently], you’re going to be more attuned to market drops,” Fitts said.
Hyperbolic discounting. We encounter hyperbolic discounting every December when we try to make New Year’s resolutions. Hyperbolic discounting is the belief that “in the future [I will be] more capable than I am right now.”
Fitts shared the Fogg Behavior Model as a tool to help advisors overcome these client objections. Developed by Dr. B.J. Fogg of Stanford University, the model suggests that for a behavior to take place, three things have to happen at the same time: motivation, ability and a prompt or trigger. Participants with the motivation and ability to save need a prompt to push them over the inertia hump.
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