These are questions that can’t be answered with factual information alone. Crunching the numbers can give some guidance, but that’s only the beginning. What really improves the quality of decision-making is personalized attention from someone who knows your family history, your lifestyle preferences, and your values – or, at least, someone who is willing to take the time to have those kinds of conversations with you.
Dan Ariely is a psychology professor and the author of several bestselling books on behavioural economics. He has devoted his career to the study of how and why people make the decisions they do. One of his most robust core findings is that people often do not know how to choose rationally, let alone wisely. Fortunately, he assures us, people can be helped to make better tradeoffs just by being asked to consider some of the things they normally overlook or are prone to overvalue. In light of this need, he asserts that financial advisors should radically rethink what they have to offer their clients. Instead of spending an hour fine-tuning a client’s investment portfolio in advance of an annual meeting, argues Ariely, an advisor would offer greater benefit talking with the client about spending and savings patterns and the tradeoffs involved in day-to-day decisions.
Ariely has found that advisors presented with this proposal usually argue strenuously against it.10 ‘That’s not my job!’ they protest. ‘Why not?’ Ariely pushes back. Who else is equipped to help someone with decisions involving both actuarial and lifestyle considerations? Doing so blends both the technical and the personal sides of advising at the highest levels.
To receive encouragement
My congregation was recently asked to fill out a survey regarding why people attend weekly church services. One of the main questions was, ‘What do you most want to experience as a result of coming to church?’
Top answer: Encouragement.
Heck, yeah!
I see the same yearning in my financial therapy practice on a daily basis. People who come to see me usually have some kind of painful money history or current dilemma. They may have made bad investment decisions or overspent. They may have been exploited or experienced a huge hit to their lifestyle due to a major personal setback such as job loss or divorce. Because of the secrecy and shame that attend financial matters for many people, they may find themselves to be short on support and encouragement when they need those things the most.
Warmth and good cheer are rarely misplaced, but they are especially vital to clients who are trying to change longstanding habits. When the behaviour change is daunting, long-lasting, preventative, or unusual for their social circle, your encouragement can go a long way to helping people persist. Too often, however, financial change agents cut clients loose once they’ve demonstrated just two or three months of positive behaviour change. That is just around the time that clients’ enthusiasm starts to flag, or they get hit with an unexpected life event, or their deadbeat cousin shows up and starts pressuring them to do something contrary to the plan you’ve co-created.
To have someone to blame
One of the blessings of disposable income in my life is that it allows me to hire a housecleaner. Having such a person come into our home offers some of the benefits cited in the previous pages – ‘time savings’ and ‘offloading of unpleasant tasks’ chief among them. But one unexpected benefit of a housecleaner has been that there’s always someone for me to blame when something goes missing! (Just to be clear: I blame her only in my head, not out loud. Because it never actually is her fault. It’s really the kids’. Or the dog’s.)
Evidently, I’m not alone in finding it comforting to have someone to blame. I have had many couples report to me that they hired a financial expert because they did not want to deal with the other’s wrath if something went wrong in their family business or retirement planning. There is some research support for this notion. In a 2016 study, researchers confirmed that some people ‘delegate primarily to cede responsibility and blame’ rather than for the more logical reason of benefitting from wise counsel.11 Just imagine the marketing fun you could have with that one!
To feel safer
Seen from a different perspective, having someone else to blame if things go wrong could be construed as a darkly funny variant of trusting in someone’s expertise to keep you safe. Of course, feeling safer goes way beyond the blame phenomenon. People consult with experts because they want to experience that calm, settled state that I highlighted at the beginning of this chapter.
In his book Pre-Suasion: A Revolutionary Way to Influence and Persuade, social psychologist Robert Cialdini discusses the influential effects of experts on decision-making. When people are unsure of what to do or how to think, the existence of someone with presumed legitimacy or expertise seems to invite people to behave like cyclists on the Tour de France: They tuck in and draft behind someone they trust.
Functional neuroimaging studies allow scientists to see what happens to brain activity as people are put through a variety of cognitive tasks. Evidence shows that the presence of an expert can change the very way our brains process information – or, indeed, cease to process information. In one study12 that journalist Jason Zweig has dubbed ‘Your Brain on Investment Advice’, participants were tasked with making difficult financial decisions either on their own or with some input from an identified expert. When left unassisted to decide on the relative merits of a given option, subjects showed increased activity in the areas of the brain involved in weighing options and opinions. That was an entirely unremarkable finding. That’s what was expected of brains working hard to reach a decision. But that all changed when subjects were offered access to the advice of someone identified as an expert economist. Under that condition, structures involved in active decision-making seemed to go into hibernation. The brains of people under conditions of expert economic advice looked a lot like the brains of people at prayer: trusting; non-critical; safe.
These findings should make you blanch, at least a little. Clients put a lot of faith in your presumed expertise. While that is generally a good thing, it can be a dangerous thing, too. This goes well beyond the obvious Don’t be a Bernie Madoff injunction. The ‘tuck and draft’ model can offer a convenient excuse for continued ignorance among financially avoidant clients who want to remain that way. It has fiduciary implications for you, the advisor: How do you get truly informed consent from clients who trust you implicitly and who would happily sign any piece of paper you give to them, regardless of whether they understand its contents? Advice-giving under such circumstances requires advisors to be extra-scrupulous about understanding their client’s hopes and concerns, surpassing the rather perfunctory and unhelpful ‘Know Your Client’ protocols required by many companies. Doing your due diligence in this regard serves to enhance safety at all levels, for both you and the client.
What gets in the way of these aims?
The preceding pages summarize the chief aims behind asking for advice and the most powerful advantages of receiving it. Sometimes, of course, people may not know what their true motivation is for reaching out. They may say that they want expert input when what they really want is external confirmation. They may say that they’re looking for more information when what they really crave is more discernment. There can be a further disconnect between what the client is asking for and what the advisor is attempting to address. Such discrepancies or mismatches can contribute to good advice being ignored.
A further problem with respect to advice-seeking involves the advice-giver moving too quickly into offering solutions. A justifiable confidence in their capability can lead seasoned and rookie professionals alike to launch prematurely into offering solutions, before they’ve fully ascertained the client’s reasons for reaching out. This is a major turn-off, and a chief contributor to non-adherence.
A related problem is the tendency of some professionals to dominate the discussion, especially during that all-important first meeting. Out of a desire to impress or instill confidence or seal the deal, financial professionals talk about their ‘process’, their superiority over their competitors, their array of offerings … you get the picture. But clients rarely give a rat’s patootie about our process. They just