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Financial advisors are crucial in helping clients make informed decisions about their money.
But there's a fascinating psychological phenomenon known as the "curse of knowledge," which suggests that having expertise in one area, like finance, can impede effective communication.
The curse of knowledge defined
The curse of knowledge is a cognitive bias that occurs when someone assumes others have the same level of knowledge or expertise as you do.
This bias can cause you to underestimate the knowledge gaps of your clients and colleagues.
Here’s an example:
In one experiment, participants were asked to guess how accurately they could identify the name of a song by listening to it tapped by another participant with their figure on a tabletop.
They predicted they could correctly identify it 50% of the time. The actual accuracy rate was only 2.5%.
Watch this video. It’s fascinating.
Those tapping had difficulty imagining others couldn’t recognize the song. Those listening heard only taps with little meaning.
When we know something, it’s hard for us to believe others don’t.
The illusion of transparency
Another psychological concept closely related to the curse of knowledge is the "illusion of transparency."
This phenomenon suggests that we overestimate how much our thoughts and feelings are evident to others.
Here are three examples of the illusion of transparency:
- When lying, we believe our lies are easily detectable by others.
- When we are upset, we believe our distress is more evident to others.
- We believe it’s more evident to others when we are nervous.
When you communicate complex financial information to clients, you may mistakenly believe your explanations are more transparent and easily understood than they are, leading to miscommunications.
A neuroscience perspective
From a neuroscience perspective, the curse of knowledge occurs because our brains create neural pathways reinforced with repeated use and practice. This means the more we know about a topic, the more efficiently our brains process information related to that topic.
As a result, we may assume that others have the same knowledge we do, causing us to believe (for example) that everyone understands what an “inverse yield curve” is (and portends).
Coping with the curse of knowledge
Recognizing the curse of knowledge and its potential consequences is the first step toward mitigating its effects. Financial advisors can employ these strategies to overcome these traits while maintaining professionalism and humility.
Empathetic communication
Actively listen to your clients, ask open-ended questions, and seek to understand their unique financial goals, concerns, and level of knowledge. Adopting an empathetic communication style can bridge the gap between your expertise and the client's understanding.
Use plain language
Avoid overwhelming clients with jargon and complex financial terminology. Using analogies and real-world examples can make abstract financial concepts more accessible.
Other suggestions include:
- Explain like you are talking to a fifth grader.
- Use clear examples and incorporate them into a story, if possible.
Final thoughts
The curse of knowledge can affect even the most knowledgeable financial advisors.
Financial advisors can provide more effective and client-centered services by practicing empathetic communication and using plain language while maintaining humility and professionalism.
Dan coaches evidence-based financial advisors on how to convert more prospects into clients. His digital marketing firm is a leading provider of SEO, website design, branding, content marketing, and video production services to financial advisors worldwide.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
