Photo byScott Lorsch on Unsplash
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
When I was a financial advisor, I found the process of trying to convert prospects into clients extremely frustrating.
I’ve since learned that the difficulty advisors face when trying to persuade clients to abandon their long-trusted way of investing is rooted in a well-known psychological bias. Understanding this bias is the key to gaining more assets.
The perception of irrational conduct
At the time, I thought all I had to do was marshal the evidence. Since that can be a bit dry, I sprinkled my pitch with references to practices that influenced brokers’ recommendations, like trailer fees and kickbacks from mutual funds. I closed with Standard and Poor’s SPIVA data, which perennially shows how few actively managed funds outperform their benchmarks and the daunting odds of repeating outperformance, especially over the long term.
But more often than not, I was unsuccessful.
The impact of the endowment effect
In an interesting blog post, Andrew Hallam explained this anomaly. It turns out what looks like irrational behavior has a logical underpinning.
Hallam explained the powerful impact of the “endowment effect.” It’s based on a paper published in 1991 by Daniel Kahneman, Richard Thaler and Jack Knetsch. The authors found people often demand much more to give up an object than they would be willing to pay to acquire it. Once we own something, we tend to overvalue it.
The endowment effect causes investors to eschew data and cling to discredited notions of investing because of their misplaced faith in their broker and their mutual funds and stocks.
A Coach and Speaker Who Will Increase Your Conversion Rate
My evidence-based persuasion strategies have significantly increased conversion rates for my coaching clients.
I use videoconferencing, which is very cost-effective. I also give on-site presentations and am available to speak at conferences and internal meetings.
I am no longer affiliated with any advisory firm.
To see videos of presentations I have given, please click here.
For more information, please contact:
Dan Solin
www.danielsolin.com
[email protected]
(239) 949-1606
Deja vu
Every advisor I meet follows a process to convert prospects into clients. Often, the process differs within the same firm. It can be unique to each advisor.
When I ask advisors to explain their process to me, they typically tell me they rely on a “script.” Some actually read from the script during the initial meeting with prospects. Others have memorized the script.
Further inquiry reveals the script is a way to determine if the prospect is a “fit” for the advisory firm. After a few preliminary questions, the advisor delves into the goals and personal financial details of the prospect.
Since all of my clients are evidence-based advisors, I formulated this question that I thought would be compelling: What’s the peer-reviewed evidence supporting this process?
No one has shown me any evidence for using a script or for any other aspect of his or her conversion process. Some have told me that their process “works for them,” which is a valid point.
A better way
The problem with getting you to switch to an evidence-based methodology to convert prospects into clients is partially attributable to the endowment effect. You have a process in place. Consequently, you place a high value on that process. If the evidence-based process is markedly different, it exacerbates your resistance to it.
Whatever your process, if it’s working for you, don’t change it. If it isn’t, consider one supported by peer-reviewed evidence every bit as rigorous as the evidence underlying your investment philosophy.
Don’t be a victim of the endowment effect. It will cost you AUM.
Dan Solin 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. His sales coaching practice includes helping advisors convert prospects into clients and generating leads through videos and other elements of marketing. Dan is not affiliated with any advisory firm.
Get Dan's investing insights by signing up for his free, weekly newsletter here.
View Dan’s new YouTube investing channel here.
Read more articles by Dan Solin
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
