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You probably use a fact finder with new prospects. You are likely very good at asking about risk tolerance and retirement horizons. When an existing client tells you their concerns, you will show some level of empathy and allay worry. But how good are you at listening between the lines? How skilled are you at “Financial Psychotherapy”?
FAs that retain clients and gain new ones aren’t just good at asset allocation and tax planning. They are great communicators. They especially know how to listen. In one study by US Trust, 86% do business with you because they feel understood. Only 6% work with you because they are made to understand. In other word, they are told what to do.
System 1 Thinking
Daniel Kahneman in his landmark book, Thinking Fast and Slow, came up with the notion of getting beyond trite responses and superficial questions and answers. He created a dichotomy between System 1 and 2 responses. System 1 questions might be, “Hi, how are you?” The response is generally, “Fine, I am good. How are you?” And the greeting dance continues. These questions and responses are only pro forma. Very few will answer how their weekend was or the current challenges they face.
When I was in graduate school at UC San Diego, we tested this automatic greeting. When an acquaintance would say, “Hi, how are you?” we would respond with an unexpected, “Fine. I was diagnosed with Cancer. My girlfriend and I broke up so I need a new place to stay.” The greeter would often respond with, “I’m fine also.
Thanks for asking,” without hearing what the response was. They only heard what they expected to hear.
In an advisor-client environment, the superficial System 1 communication might be:
Client: I’m worried about all the volatility right now.
Advisor: Oh, don’t be concerned. We have your portfolio well diversified. We expected some volatility and planned for it.
The client may walk away thinking the FA didn’t really listen. In a relationship, one party might talk about their worries. When the other communicates a solution, the other feels slighted. All they wanted to do was vent and don’t feel listened to.
System 2 Thinking
In a System 2 environment, a financial advisor will dig deeper asking relevant questions. If volatility is the topic, the FA might ask, “What concerns you about volatility right now?”
The client’s response could be, “I am concerned that my retirement will run out before I do.”
The FA might then use System 2 in the conversation as follows:
Advisor: Has there been a change in your thinking since the last time we spoke about volatility?
Client: Yes, I have been listening to CNBC. Some of the commentators say we are headed for a deep recession in the next six months. Advisor:So you are more concerned about a future recession and less about volatility. Did I hear that right?
Client: Yes
Advisor: If we could talk about the chances of a recession and how to prepare, would that help?
Client: Absolutely.
In the above example, the FA asked System 2 questions and included a recap in the second one. The client felt understood and heard. The best FAs I have worked with in my coaching practice are trained to ask relevant System 2 questions. They rarely settle for superficial responses or quick comments.
Communication Bias
One of the reasons we engage so often in System 1 thinking and questions is “Availability Heuristics.” These are the first thoughts and impulses that come to mind in response to a situation. Examples of this thought bias are best demonstrated when driving your car. A stop sign appears, and you brake without thinking.
In another type of situation, you might be given a bill for a meal, and in response, you tip the same percentage, regardless of the service. In one study, guests were asked why they tipped in the face of bad service. They said that not tipping would be out of character. They would feel guilty unless they left something.
58% of the population thinks life insurance is a bad product. When asked why they felt that way, the System 1 response is often high fees or affordability. But when asked deeper System 2 questions, the response is more about friends’ comments. The client had no direct experience. While Availability Heuristics make our life easier, they are also a trap for financial advisors who accept first responses without digging deeper with relevant System 2 questions.
How to Apply System 2 Questions
One FA thought an annuity would help a client get guaranteed income during retirement. The client unexpectedly said he didn’t want to tie up his money. The FA used System 1 communication and spoke for about 10 minutes on why the annuity was important. The client wasn’t convinced.
Later, the FA found out through System 2 questions that tying money up wasn’t the issue. The client had a medical event 10 years earlier that forced him to come up with $15,000 in co-pay expenses. The concern was never about liquidity. It was always about access to funds in an emergency. Without System 2 questions, the client would not have accepted the annuity or the FA’s recommendations for a financial plan.
I would love to send you a free video on “System 1-2 Thinking.” Write me at [email protected] or call 714-368-3650. We will spend a few minutes talking about your goals for increasing your business this year.
Dr. Kerry Johnson is “America’s Business Psychologist.” He is the best-selling author of 17 books including the recently released, How to Recruit, Hire and Retain Great People. He is also a frequent speaker at financial conferences around the world. Peak Performance Coaching, his one-on-one coaching program, promises to increase your business by 80% in 8 weeks. To see if you are a candidate for this fast-track system, click on www.KerryJohnson.com/coaching and take a free evaluation test. You will learn about your strengths and what is holding you back. Or call, 714-368-3650 for more information.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
