Few advisors would admit that they have anything to learn from Bernie Madoff. But setting the obvious ethical issues aside, advisors can still learn from the peer group influence that made Madoff a safe choice in retired Jewish communities in New York and Florida.
When it comes to building portfolios, it’s not good practice to be swayed by what others are doing —in other words — to follow the herd. But one of the core laws of persuasion is to tap into peer group momentum. This can help you make your case to existing and prospective clients.
The law of social influence
How to win multi-million dollar clients
Tired of ho-hum conference speakers? Dan Richards delivers leading edge keynote talks on what it takes to
attract high end clients today.
To energize your next conference, click for more information on Dan's speaking topics and to hear from past clients.
Dan Richards
ClientInsights-President
6 Adelaide Street E, Suite 400
Toronto ON M5C 1T6
(416) 900-0968
Robert Cialdini of Arizona State University is noted for his research on how to influence behavior. I described one of his laws relating to the principle of “request and retreat” in my article, “The Question that Quadrupled Response Rates.” Another of Cialdini’s laws of influence relates to peer group pressure, also known as the law of safety in numbers. Quite simply, people are influenced by what people similar to them are doing.
UCLA’s Noah Goldstein studied the power of peer group pressure using different messages to get hotel guests to reuse towels. Here are two different signs that were tested:
-
Help us reduce our energy bill.
Help us save the environment.
When greeted with the first sign, 16% of guests reused towels – not a great response and not a surprise given that the message was entirely self-serving for the hotel. By contrast, when encountering the appeal to save the environment in the second sign, guests reused their towels almost twice as often, at 31%.
Goldstein added a sentence to the second message: “Last year 75% of guests in this hotel reused their towels and helped save the environment.” By adding that second sentence, towel reuse increased to 44%.
When Goldstein changed “75% of guests in this hotel” to “75% of guests in this room,” he saw a further increase to 49%.
The conclusion: The more people feel that others like them are behaving in a certain fashion, the more likely they are to mimic that behavior.
Responding to concerns
The law of peer group influence has a broad application. Let’s suppose someone you’re meeting with raises a concern about a recommendation you’re making related to investing outside the U.S. You might effectively segue to evidence that supports your recommendation by using a model that can be described as “feel, felt, found”:
“I understand exactly how you feel. In fact your reaction is very common. When I’ve talked to other clients like you about this, they initially felt exactly the way that you do. But when we dug into the numbers, what they found was that this recommendation made a great deal of sense. Can we spend a few minutes going into this in more detail?”
Or let’s suppose you’re talking to a client about inviting their adult children to sit in on a portfolio review. One way to use the law of peer group influence to help get client buy-in is to say: “I’ve recently had a number clients in situations that are similar to yours invite their adult children to attend our annual portfolio reviews. And almost always they’ve told me that the experience opened up lines of communication and that they were really glad that their kids had attended.”
Using peer influence to reduce risk
In an increasingly outcome-focused world, one way to increase your perceived value is to hone in on the kinds of clients that you serve. That way, your investment approach and practice will be tightly attuned to the needs of your clients . My articles, “Harvard's #1 Strategy Guru on the Key Decision for Your Business” and “How Specialist Advisors Earn Twice as Much,” provide more suggestions for focusing your practice.
Peer group influence also increases the likelihood of prospects working with you. The more a prospect sees that you work with clients like them, the greater their predisposition to work with you as well. Peer group influence helped Bernie Madoff perpetrate his fraud, devastating thousands of investors in the process, but you can also use the effect to reassure investors and inspire the confidence to help them make the right decisions for their futures.
And the narrower your focus is, the more effective: It’s good so say that you work with many retirees in the larger community in which your prospect lives, but better to say that your client base includes a number of people who live in the immediate area and best to be able to say that you have a number of clients who retired from the same company where your prospect works.
“Becoming the Safe Choice for Your Target Clients” provides more insight into how to use the law of peer group influence to position yourself within a target community.
Dan Richards conducts programs to help advisors gain and retain clients and is an award winning faculty member in the MBA program at the University of Toronto. To see more of his written commentaries, go to www.danrichards.com or here for his videos.
Read more articles by Dan Richards
