Convincing a client to play along is easier if you know which buttons to push, writes Simon Hoyle.
Getting a client to do something they’re not keen on can be like wrestling a pig: You both get tired, and the pig gets annoyed.
It helps to have a grasp of some of the basic tenets of behavioural psychology when trying to persuade, cajole or badger clients into doing the right thing. Knowing what sort of personality you’re dealing with can help you work out which buttons to push to get the result you’re looking for.
There’s a famous experiment involving chocolate and bananas that is used to illustrate how irrational humans can be when it comes to investing.
The experiment goes something like this: A lecturer tells his audience that next week he’s going to bring in a treat – he’ll give everyone either a block of chocolate or a banana. He asks his audience to nominate now what they’d like him to bring in next week. The majority go for bananas.
‘Planners can turn these quirks of human nature to advantage’
A week later the lecturer fronts the audience again and confesses that he’s lost the list of who wants what. Not to worry, he says, he’s brought enough chocolate for everyone, and enough bananas for everyone. He again asks the audience to say which they’d like. The majority go for the chocolate.
The conclusions that can apparently be drawn from this experiment are that most people will act in their own best interests over the long term (they will go for bananas over chocolate because they know bananas are better for them); that most people will opt to do the right thing at a later date if it means experiencing no immediate disadvantage or discomfort (opting for a banana in a week’s time causes no distress right now); and in the short-term most people prefer immediate gratification (on the day, they cannot bring themselves to take the banana).
Other difficult personality traits to overcome – but by no means the only ones – are apathy and inertia. These personality traits often become apparent when it comes to superannuation (at least when clients are relatively young), because an individual’s retirement may seem to them to be a long way off – and there’s nothing like an over-the-horizon target to encourage apathy and inertia.
Despite growing awareness that the compulsory 9 per cent superannuation contributions won’t fund an adequate retirement income, many investors still can’t be convinced to up their contributions.
Planners can turn these quirks of human behaviour (and others) to advantage if they know how to tackle it. Financial services groups are developing increasingly innovative ways to help people make smarter choices, and planners can pick up a few tricks from how institutions encourage the more inert of investors to take what passes for urgent action.
(It’s all relative, of course – in this context “urgent” can still mean waiting until next year to do something, or even the year after that.)
An example is a so-called “soft compulsion” scheme, the Plum Financial Services Escalator program. This is a corporate superannuation service designed to encourage employees to make voluntary super contributions, in addition to the basic 9 per cent. It goes about it quite cleverly.
First of all, Plum prefers to introduce what’s called an “opt-out” scheme. That is, all employees are deemed to have signed up to make higher contributions in the future, unless they actually opt out. Employees generally believe that contributing more to super is a good idea, but since they don’t have to do it now, their inertia and apathy work to stop them from opting out.
So the first lesson for planners is that you stand a greater chance of success if you can get a client to commit to a course of action unless and until they tell you they don’t want to do it.
Second, Plum asks employees to commit today to an action they won’t have to undertake until some point in the future – ideally, the timing of an increase in super contributions coincides with a pay rise. The lesson here is to defer the “pain” of making additional contributions until later – preferably until the client has more money coming in, some of which they won’t miss if it’s diverted to super.
Having to go to the time and effort of opting out, combined with not having to actually do anything right now, appears to be a powerful combination. Plum reports that the average participation rate in opt-out schemes is better than 80 per cent.
It seems that if you know what you’re doing, otherwise annoying quirks of human nature can be effectively harnessed and put to good use.
