Five Steps to Rescue Clients from Decision Quicksand

By John Solomon, Executive Vice President, Brinker Capital Wealth Advisory

Do some of your high net worth and ultra-high net worth clients seem to make big decisions with ease yet get bogged down by relatively smaller ones?  If so, they may need your help in escaping “decision quicksand.” Decision quicksand refers to the process that causes people to get “sucked in” to spending an inordinate amount of time on relatively insignificant, or reversible, decisions. [1]

Researchers had shown that when people who had to solve a complex issue quickly, they could do so.  Faced with equally difficult decisions with no time constraints, they got bogged down and took much longer to reach a decision. The study also showed that people tend to stress and agonize over reversible (unimportant) decisions twice as long as binding ones.  When faced with difficult but unimportant decisions, the participants looked for additional information, and fell into what some call “analysis paralysis.”

As explained in the New York Times best-selling book, Personal Benchmark, Integrating Behavioral Finance and Investment Management, stress triggers a move away from a rational and cognitive decision-making style in favor of an effective style driven by emotions. Research also has suggested that we experience a 13 percent reduction in our intelligence during times of stress, as valuable psychophysiological resources are shunted away from the brain in service of our ability to fight or flee.

When under stress, emotional decisions tend to be myopic. We privilege the now and forget about the future. Decisions made under stress are also reactive. Since our body is being signaled that something dangerous is imminent, we tend to react rather than reason. Reacting is great for swerving to miss a car, but not such a great impulse to follow when it comes to setting a course that will traverse the next five years.

The Center for Outcomes, an advisor education program sponsored by Brinker Capital, offers financial advisors the following five steps to encourage decisiveness when educating clients:

  1. Establish the “Why?”. The reasons why successful advisors are highly compensated and most trainees burn out within a few years are one in the same–selling is difficult. All too often, advisors are selling the wrong thing, focusing on the “What?” instead of the “Why?” In his excellent TED talk, Simon Sinek suggests that most uninspired business transactions deal with the particulars of a product or service rather than the underlying motivation. Rather than providing your clients with a laundry list of your services, help them understand how your efforts will help them reach their “Why?.” As Sinek says, “People don’t buy what you do, they buy why you do it.”
  2. Demonstrate subject matter expertise. Authority matters and financial advice is no different–your clients want you to be an expert and this is your chance! Once you have told them why they must engage in a certain behavior, you must now back it up factually. But in doing so, we must remember the words of Einstein and make it as simple as possible but no simpler.
  3. Show social proof. Investors are influenced by what others think and do. So, if you are trying to engage your clients in an adaptive behavior (e.g., investing for income, growth, or retirement), an advisor should inform them that many clients in a similar situation do the same thing and construct a narrative about how it has worked well for them. One of the elements that elongate the decision-making process is the search for more information and opinions. It’s important for clients to validate your recommendations, but they risk getting lost in data and misinformation. Periodically check in with the client and discover what they are learning. You will spot inconsequential variables that may be slowing them down.
  4. Propose a solution. Don’t overwhelm clients with data. Give them a balanced and objective presentation of all alternatives under consideration, and reference materials that they will find most helpful.
  5. Meaningfully arrange key points of the conversation. Sequence the most important discussion items at the beginning and at the end of the conversation. Remind clients of the big picture. Make sure they continue to appreciate how this decision fits in with their overall goals. This will help them remain focused.

The market is extremely volatile right now, but that doesn’t mean that your client’s life needs to be. Numerous studies indicate that clients achieve 2 to 3 percent of outperformance when they work with advisors[2]. This “Advisor Alpha” is predicated on the advisor being an effective behavioral coach during times of uncertainty. Financial advisors can employ these five simple steps to encourage decisiveness and manage stress while they are educating clients.

About Brinker Capital

Since 1987, Brinker Capital has innovated based on creative ideas generated from actively listening to the needs of financial advisors and investors. Our highly strategic, disciplined investment process is the key to making our ideas successful and helping to achieve better outcomes for advisors and their clients. With $17.8 billion in assets under management (as of December 31, 2015), Brinker Capital is an independent investment management firm and one of the nation’s leading providers of managed account and mutual fund investment services.

Brinker Capital has maintained a sophisticated investment philosophy based on the time-proven investment principles used by large academic institutions and endowments: broad asset class exposure, multiple diverse strategies, highly-focused stock selection and strong risk management. Our clients know that we will focus entirely on meeting their needs. Increasingly, individual investors, institutions, high-net-worth families and single family offices have turned to us to improve their understanding of investment and market complexities, build better outcomes for current and future generations, provide transparency in fee structure and demonstrate an overall alignment of interests.

Learn more at http://www.brinkercapital.com and http://www.twitter.com/BrinkerCapital. Brinker Capital, Inc. is a Registered Investment Advisor.

Brinker Capital is a 2016 FSI Premier Sponsor.

 

[1] Sela, A., & Berger, J. A. (2011). Decision quicksand: How trivial choices suck us in. Journal of Consumer Research 39(2). doi: 10.1086/662997

[2] Percentages derived from the following studies: Vanguard (2013), Advisor’s Alpha; Morningstar (2013), Alpha, Beta, and Now…Gamma; and Aon Hewitt (2014), Help in Defined Contribution Plans.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s