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I have often wondered what kind of data resonates most with prospects and moves them to choose an advisor. It turns out that it’s not any of the investment-oriented subjects advisors typically spend so much time discussing.
Advisors seeking to increase their AUM have no end of data at their disposal. That can be both a benefit and a burden. The judicious use of data can be very persuasive. It can also inundate the prospect and cause “data fatigue.”
Most advisors believe providing data on investing is a good idea. I have seen advisors use reams of information in presentations to prospective clients, including historical returns, mutual fund ratings, market timing, stock picking, tax information, bond yields, asset allocation … and the list goes on.
But to understand what data is more persuasive, you need to be familiar with the principle of social proof and the related power of positive association. Both are described in detail in Robert Cialdini’s book, Influence: Science and Practice.
The principle of social proof
The decision to retain an investment advisor is fraught with anxiety and uncertainty. Prospects have many concerns, the most critical of which is whether they will run out of money in retirement.
This situation illustrates the principle of social proof, according to Cialdini. This principle states that people – especially when they are uncertain or the situation they are confronting is ambiguous – will be strongly influenced by what other people do in similar circumstances. The “other people” most likely to affect their judgment are those who are most similar to them.
How can you use the principle of social proof to your advantage? Recognize that if your prospect is a lawyer or an engineer, the most convincing data you could provide would be the names (assuming you have obtained permission) of other lawyers or engineers who use your services. The more similar your references are to your prospects, the more likely they will find them persuasive.
What if you don’t have clients in the same profession or business as your prospect? You can still use the principle of social proof to your advantage. Provide the names of vendors who use services or products your prospect also uses, or the names of well-known people, non-profits or companies in the community who do so.
Many advisors believe they can allay the concerns of their prospect by providing more data about returns and investment expertise. But Cialdini refers to studies that indicate that it is more effecrive to show prospects evidence that others similar to them have acted in a way consistent with the decision you want them to make.
The power of positive association
Do you ever wonder why politicians enlist the endorsement of celebrities? Few of us respect the political views of those celebrities. They are trained actors. They have not studied foreign policy or domestic economic issues. If they weren’t celebrities, we would have no interest in their views about which candidate was most fit for office.
Political endorsements aren’t the only example of people trying to associate themselves with a positive image. Celebrities endorse all kind of products, from food to automobiles. But as Cialdini notes, “What does Tiger Woods really know about Buicks…?” You could also ask why General Mills puts pictures of Olympic gold medal winners on its cereal boxes. Are you really more likely to swim like Michael Phelps if you eat Wheaties?
The companies shelling out millions of dollars for celebrity endorsements are not stupid. They are familiar with the power of positive association. They understand that we want to bask in the reflective glow of superstars by being associated with them, even if that association is flimsy at best.
So how can you use the power of positive association in your dealings with prospects?
Warren Buffett recently strongly endorsed the use of index funds. If you are an advisor advocating the extensive use of index funds in your clients’ portfolios, you might find it effective to note that you follow the same investment philosophy as Buffett. Prospects know and respect Buffett. They may be more influenced by the knowledge that Buffett approves of this investment strategy than by independent data supporting the use of index funds.
Persuading prospects to become clients is very challenging. The correct and ethical use of the principle of social proof and the power of positive associations will ease the transition.
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.
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