Emotions: "The great captains of our lives"
About 20 years ago I read a review of a much hyped new restaurant that has stayed with me ever since. The well regarded reviewer said the restaurant had not met its most fundamental obligation to him as a customer. I was intrigued. It seems the food was good, the fit out beautiful, the service was efficient, and yet there was this fatal shortcoming… what could it be? The restaurant, he revealed, had failed to make him and his guests feel welcome. And if you don’t feel welcome, how much does the rest really matter?
I have reflected on this observation over the years when eating out, and it is surprising how often restaurants fail this test of hospitality. Counter intuitively, the more expensive the restaurant, the more vulnerable they seem to this failing. It’s a telling illustration that people who are highly motivated to succeed and (literally) heavily invested in the venture can still fail to address such a basic requirement.
What is the point of the anecdote and what relevance does it have to financial services? For me, it’s a reminder that people’s decisions and judgements are strongly and validly informed by emotion and that if we are in the business of investor satisfaction, we have no choice but to address their needs at both an emotional and a rational level. Losing sight of that is dangerous.
How might this play out in practice? At a rational or functional level, your clients will be looking for things like having their cash flow needs met, evidence of systematic process, regular portfolio reviews, efficient structuring, quality research and clear eyed recommendations.
At an emotional level it may relate to anxieties like, “will I be ok?” or “can I handle a set back?” or “what happens if I get sick?”.
At another level of abstraction again it could be:
Does my adviser really care about me and my family?
Is my adviser thinking of me when things are down?
Can I rely on my adviser to look after my partner if I die unexpectedly?
And for prospective new clients or those flirting with a competitive proposition it might be:
What does it say to the world about me if I go with adviser A over adviser B? Does it suggest that I make smart decisions, that I have been successful, that I’m important?
Do I feel that my portfolio is as important to this adviser as it is to me?
Does it feel like I am less likely to miss opportunities or feel regret if I go with adviser A or adviser B?
Further, it’s important to understand from the science that investors may not consciously ask themselves (or you) any of the above questions, and yet they will be subconsciously asking, and you will be answering them – even if you don’t know it and if only through inference and implication.
The famous artist Vincent van Gogh put it his way, "Let's not forget that the little emotions are the great captains of our lives, and we obey them without realizing it."
van Gogh penned these words in a letter to his brother in 1889, drawing on his own experience of life. His insight was astute. Gardiner Morse writing in the Harvard Business Review[1] over 110 years later said that neuroscientists have identified that, not only do our emotions play a role in decision making, where a person’s pre-frontal cortex (the part of the brain that deals with emotions) is damaged, that person will struggle to make decisions thereafter, even though their IQ, memory, language and other capacities may be fine. It seems there is a dance between our emotional selves and our rational selves in decision making and that, without the dance, we find it very hard to make decisions using rationality alone. Further, it would often seem that the role of the rational self is to justify the desires of the emotional self and that we do it without even being aware of it.
So, how can an adviser present themselves and their services in such a way that a prospective client’s overt and unspoken questions will be answered in a way that is likely to satisfy their emotional needs as well as their rational needs? Some dos and don’ts could include:
Do
Show genuine interest in them and their specific needs and concerns. Probe on families, special situations, any ‘picture’ they have in mind as to the services they are seeking. Understand what they feel the service has to include for them to feel comfortable. Let them know they would be important to you.
Focus on the personal aspects of your service, how you are organised to have more time to spend on them (as needed), and how your service can be tailored to them
Proactively surface the sorts of questions set out above to see whether the client responds
Emphasise the expert resources and processes that support your portfolio management services and the oversight role you play. Connect the features of your service to their specific needs
Where you have the ability to provide access to one off investing opportunities, let them know if they would be eligible for these
Be warm and confident. Epitomise the approachability and professionalism you are offering
Provide examples of how you have been able to tailor services for others and offer client testimonials.
Ensure your premises, attire, documentation, services and pricing approach reinforces your positioning.
Introduce members of the team the client will be dealing with – it’s not just you
Don't
Start talking about your services before you have an understanding of the investor’s needs
Assume the potential client will tell you about all their needs without you drawing it out of them.
'Productise' your investment services. A product speaks to how sophisticated the adviser is, while a service speaks to what you will be doing for the client. Products are about the issuer; services are about the recipient.
Suggest commoditised products as the response to emotional needs
Give investors documentation that shows that there is a finite number of investment options available to them
Talk about services without illustrating how they can address the client’s specific needs.
The closer someone is to retirement and the more capital they have the more likely they are to be heavily engaged with the sorts of questions we have listed above.
Finally, having identified the overt and subconscious weighing and measuring that goes on in the minds of investors, it is worth reflecting on the managed account structure that will be most compatible for this profile of person. We think managed discretionary accounts are overwhelmingly superior in this respect due to the fact they present as services not products, and can accommodate more choice and individualisation.
If you would like to talk about how managed accounts can help you better support the emotional needs of your clients, please contact us
[1] https://hbr.org/2006/01/decisions-and-desire (January 2006)