Trending
Humans have biases. It’s, well, part of human nature. Biases are also inevitable. Throw in the fact that no one is perfect and bias is inevitable.
It also comes with negative connotations. However, registered investment advisors can leverage clients’ biases for good. Yes, that’s right. Advisors, with good communication and not much else in terms of effort, client biases can be harnessed for positive purposes.
Of course, it pays to understand what some of the obvious, long-held biases are. For example, advisors and do-it-yourself investors alike have long displayed predilections toward domestic large-cap equities while eschewing small-caps and foreign stocks, sometimes at the expense of strong returns. Translation: Biases can be costly, but since many are so entrenched and represent old behaviors and schools of thought, defeating them is easier said than done.
Tips for Eliminating Client Biases
Biases are like any other problem in that the first step toward improvement is acknowledging there’s a problem in the first place. Obviously, that takes some level of self-awareness and that starts with acknowledging that no one – no matter how successful – is perfect. And while those that aim for perfection will find it to be a moving target, there are easy-to-implement strategies for eliminating biases and scoring small, but important victories that can benefit a practice and clients.
Patrick Fagan, a behavioral scientist, recently discussed the issue of client bias with FlexShares, noting that the “easy way” is often what leads to bias.
“We rely on subconscious shortcuts. For example, given the choice between two restaurants, one extremely busy and the other almost empty, most of us will opt for the busy one. We almost instantly perceive that if it's busy, it must be good,” Fagan told FlexShares. “That’s a shortcut we call social proof.”
He highlights competence, prestige and warmth as avenues advisors can tap for breaking down client biases. Competence and prestige are self-explanatory. The former is delivering the goods for clients in terms of expectations and performance while prestige is as the word implies – it’s what clients say about the advisor to other friends, family, etc. Warmth, however, is a different enterprise.
“Warmth is about being likable, being seen as ethical and kind and caring. Tactics to build that warmth include smiling, using the client’s name when talking to them, mirroring their body language, and repeating what they say in your own words,” notes FlexShares.
More Advanced Bias Removal Techniques
Competence, prestige and warmth are undoubtedly important and those action items set the stage for more advanced bias removal concepts.
As highlighted by Fagan, those include the “free to choose” technique, the “foot in the door” technique and social modeling. In simple terms, free to choose means the advisor imparts upon the client that he or she has final say in the decision-making process. The advisor is not usurping the client.
With the foot in the door concept, this is about the advisor realizing getting a foot in the door to start is a good thing and it shouldn’t be jeopardized by asking a new client to make an uncomfortably large financial commitment. That’s how the bridges of trust get burned. Social modeling is somewhat more intricate, though not overly complex.
“We tend to do what other people do. When we see that someone is doing a certain behavior, we are more likely to follow,” concludes FlexShares. “If you can show a client that somebody is doing something with a degree of success, they are more likely to trust it and do it as well.”
Related: Empathy, Tech Critical in Improving Client Connections