Dan Solin’s article last week, The
Surprising Reason You Lose Business, discussed research by Cornell University academics. They examined why
advisers who do all the right things when meeting with prospects can still lose out to less qualified and capable
competitors.
That article reminded me of a conversation with Susan, a financial advisor. Susan’s closing rate has gone up
dramatically since she began using a seven-question checklist from the Wall Street Journal in her initial
meetings with prospective clients. By helping prospects frame their decision-making process, Susan’s odds of a
favourable outcome have risen substantially.
Why investors make poor decisions
How to win multi-million dollar clients
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The reason that investors make poor decisions when selecting advisors lies in the tendency of consumers to
overestimate their ability in a broad range of areas:
-
In a survey of faculty at the University of Nebraska, 68% rated themselves in the top 25% for teaching
ability, and 90% rated themselves as above average.
-
In one study, 93% of American drivers put themselves in the top 50% when it came to driving skills.
-
In numerous research studies, people overestimate their abilities when it comes to logic, memory and
cognitive ability.
Also referred to as “the Lake Woebegon effect” (where all children are above average) or more
scientifically as “the
superiority illusion,” this overconfidence results in some consumers investing on their own and leads
even investors who recognize the need for advice to act impulsively without thinking through the decision to select
the right financial advisor.
Overcoming the illusion of superiority
Last week’s article provided some advice on how address the problem created by overconfidence:
How can you avoid rejection by an overconfident prospect? Kruger and Dunning (the study’s authors) found
that providing even short training in the task improved participants’ ability to perform that task and
increased the accuracy of their self-assessment.
Based on this finding, you can incorporate some basic instruction on the factors (like focusing on asset
allocation, global diversification, low costs and fees and tax deferral or avoidance) prospects should consider
when selecting an advisor into your discussion with them. By “training” them in the process of
advisor selection, you will improve both their ability to choose and the self-calibration of their competence to
engage successfully in this process.
Susan takes this one step further. Towards the end of her first meeting with prospects, she asks them how many other
advisers they are meeting with and how they will make their decision. She then mentions that many investors have
found it very helpful to utilize a checklist from the
Wall Street Journal that outlines what to look for in selecting a financial advisor. Among the items on
this checklist:
-
The adviser’s background
-
References from existing clients
-
Clarifying how the adviser gets paid
-
Checks and balances that the adviser’s firm has in place
-
The adviser’s track record
-
Getting commitments in writing, including on things like adhering to a fiduciary standard
Susan has received a very positive response to this offer. The key is that the Wall Street Journal brand
gives the checklist credibility, and by attaching herself to the WSJ, her credibility has been boosted as well.
Susan does one final thing to make prospect meetings successful; at the end of initial meetings, she offers to send
prospects a template that they can use to track and compare answers to the Wall Street Journal’s
questions. She tells prospects that the template comes with her answers already recorded – and offers to
review her answers the next time that they meet.
There are no guarantees in life – even using this approach Susan doesn’t convert 100% of the prospects
with whom she meets. But by suggesting a structured decision-making process from an impartial, credible source, her
success rate has gone up significantly. As you think about this, consider whether a similar approach might be
helpful for you as well.
Should you want to pursue this idea, below are seven alternative checklists you could choose from, drawing from
three different media sources that bring objectivity and credibility.
Forbes –
10 Questions to Ask When Choosing a Financial Adviser
Forbes –
The Most Important Question to Ask a Financial Adviser
New
York Times – Questions to Ask a Prospective Financial Adviser
New
York Times – When Judging Financial Advisers, Go Beyond the Annual Returns
Wall Street Journal – Seven Questions to Ask a
Financial Adviser
Wall Street
Journal – How to Choose a Financial Planner
Wall Street Journal –
Questions to Ask Your Adviser about Fees
To learn more about the superiority illusion, read Unskilled
and Unaware of It: How Difficulties in Recognizing One’s Own Incompetence Lead to Inflated Self-
Assessments.
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
Dan Solin’s article last week, The
Surprising Reason You Lose Business, discussed research by Cornell University academics. They examined why
advisers who do all the right things when meeting with prospects can still lose out to less qualified and capable
competitors.
