Originally published on Advisor Perspectives, January 17, 2018

While the trend is toward passive investing, it’s still common for evidence-based advisors to face resistance from prospects who believe they can “beat the market,” often with the guidance of their broker.

The use of “labeling” may overcome this objection.

What is labeling?

Labeling is assigning “a trait, attitude, belief, or other label to a person, and then making a request of that person consistent with that label.”

Here’s how you could label a prospect who raises an objection about passive management:

In my experience, it’s quite common for analytical people like you to be concerned about this issue.

The prospect has been labeled as “analytical.”

You can also use labeling in a group setting. Some advisors teach courses at educational institutions as a way of generating leads. The success of this strategy depends on motivating students to follow up with you after the seminar.

In this context, you could use group labeling:

By taking this course, you’ve shown both intellectual curiosity and initiative. If you want to learn more, please contact me for a free consultation.

If you didn’t know about labeling, you would simply encourage them to contact you. Instead, you have labeled them as intellectually curious and bold.

The effect of labeling on behavior

The profound effect of labeling has been demonstrated in a number of studies.

In one study, subjects who gave to a charity were labeled “charitable.” Those who didn’t were either not labeled or were labeled “uncharitable.” Both groups were then solicited to give to a second charity. Subjects labeled “charitable” gave more than those labeled “uncharitable” or not labeled.

Another study labeled two random groups of potential voters. Shortly prior to a runoff election for alderman in Chicago, voters were asked to respond to a questionnaire as part of a research project. Those who answered the questionnaire were asked if they were interested in feedback.

Participants were randomly assigned to one of two feedback treatments, regardless of their responses. They were either labeled “average citizens with an average probability of voting” or “above-average citizens with an above-average probability of voting.”

Those labeled “above average” voted at a higher rate in both the short-term election and one held eight months later.

Refinement of labeling

These studies demonstrate the power of labeling. It motivates us to act in a manner consistent with the label we have been given.

In his book, The Science of Selling, David Hoffeld suggests taking labeling to the next level, using “expectation labels.”

Instead of simply labeling a prospect as “analytical,” an expectation label might note how people who are analytical behave. In my example of a prospect who clings to the possibility of “beating the market,” an expectation label would be:

A lot of analytical people struggle with this issue. Typically, when they measure the daunting odds of “beating the market” against the certainty of capturing market returns that will put them in the top 5% of all professionally managed money, they opt for passive over active.

Expectation labels affirm the legitimacy of how difficult it can be to make a decision between competing investing strategies. It then goes further and sets an expectation for how most “analytical people” resolve this dilemma.

Labeling, especially with an expectation attached, is a powerful force in converting prospects into clients.