Understanding your clients: The last competitive advantage

What do ancient cave dwellers, Pablo Picasso and Eric Clapton have in common. you ask? OK, so you’d never ask such a strange question, but the answer is, “More than you think.”
Cave paintings were once thought to be crude doodles that were little more than a very concrete representation of cave life. However, more recent research has shown that this art was typically put at the parts of the cave with the best acoustic properties and that cave dwellers would gather to share stories of their subjective experiences. They needed others to understand their lives.
Eric Clapton’s signature hit, “Layla” masks his obsession with his best friend George Harrison’s wife, Pattie Boyd. Unable to openly admit such a taboo desire, he instead penned a song that helped us experience his anguish, with lyrics like, “You’ve got me on my knees, beggin’ darlin’ please.” He needed us to understand his pain.
Pablo Picasso’s work, “Guernica” poignantly depicts his feelings about the Spanish Civil War. Picasso used dark color elements to convey the despair he felt at the conflict. He also used mixed media including newspaper, as he first read about war unfolding in a newspaper. Oftentimes free speech is suppressed during times of war, but Picasso found elegant expression for his feelings in this artwork. He needed us to understand his sadness.
A more recent manifestation of this deeply human need is social media. 48% of 18- to 34-year-olds check Facebook before ever leaving bed in the morning. Seventy-one percent of all Internet users have a Facebook account. 2% of all Internet searches were for “Facebook” in 2010, making it the most searched term on the planet. And finally, 750 million photos were uploaded to Facebook on New Year’s Eve alone. Some scratch their head at the rise of social media, “Why would you share a picture of what you had for lunch?” they say. The answer: We all need to be understood.
Despite the ubiquity of this need, it is one that I feel is greatly overlooked in the provision of financial services. In specific, I think there are four ways in which we shortchange the process of deeply understanding our clients:
We confuse means and ends
So much of the conversation about financial planning recently has centered around “the numbers.” What number do you need to reach to retire? What number do you need to send your kids to college? These numbers are important and no financial plan is complete without them, but underneath each of these numbers is a very human story waiting to be told. How do you want to spend your retirement? What is the professional legacy you want to leave behind? How will being empty-nesters affect your personal and financial lives? If you just know the number but not the story that’s driving it, you don’t know much at all.
We take a “widget” mindset
From what was once an almost entirely agrarian economy, U.S. GDP is now roughly 77% service-based. Selling services can be a nebulous undertaking as is the process of helping clients understand the dollars and cents value of financial advice. As such, many advisers become extremely product-focused, pushing “the next big thing” in an attempt to add value. The thing is, clients don’t care about features, they care about what the features do for them. Don’t waste your breath selling your clients on the specifics of this or that financial product. Instead, let them know how it will help them meet their specific goals.
We fail to speak their language
Another trap for service providers trying to provide value is to speak in jargon as a means of showcasing education and financial acumen (somewhat similar to I just did there). Your clients don’t care that you know what a Sharpe ratio is, but they might care about risk-adjusted returns. Your clients don’t want a lecture on mean reversion, but your knowledge of it might help them achieve their goals. Find out what matters most to them and present your message in a way that is meaningful given their particular worldview and value system. Showboating is for you, not them.
We forget friendship
Robert Cialdini is the world’s foremost expert on persuasion and the author of the book, “Influence: The Psychology of Persuasion” which is a classic no adviser should go without reading. In his seminal work, Cialdini outlines six pillars of influence and presents them in order of their persuasive power. The fourth most powerful pillar is “authority,” something that is widely marketed in the financial services arena. Everything from the letters behind your name, to the fancy office in which you work to the years you’ve been in business speaks to your authority, and you’re good at emphasizing that in a sales pitch. But Cialdini’s most powerful pillar of influence is “reciprocity,” or the human tendency to repay kindness with kindness. Yes, that’s right. Your ability to be nice to others will be more predictive of your influence than your massive brain or your corner office. If behavioral finance has taught us anything, it is that clients are emotional decision makers and will emphasize something such as friendship just as highly as actual skill when making decisions about with whom to work.
Ralph Nichols famously, “The most basic of all human needs is the need to understand and be understood.” That’s true in caves, in war, on stage and especially true in the office of a financial adviser. And the ones who understand this truth are at a significant competitive advantage over those who do not.
Daniel Crosby is a behavioral finance expert who works with organizations to develop products and messaging to maximize positive investment outcomes. Among his current collaborations is “Personal Benchmark,” a system of embedded behavioral finance delivered by Brinker Capital.