Originally published on Advisor Perspectives, September 26, 2018
You know there’s danger ahead. The bull market won’t run forever. There’s going to be a recession… or worse a Black Swan event.
You don’t know when trouble will occur or how bad it will be, although many claim to have this predictive ability.
When the inevitable occurs, many investors will repeat the mistakes of the past: Panic selling, reacting to short-term news and relying on market pundits who will be “explaining what’s going on with the market.”
You’ve seen it all before.
You want to prepare your clients by revisiting their investment policy statement, taking a hard look at their asset allocation and educating them about market volatility. You’ll get through to some, but some will ignore your sound advice.
Why is that?
We act irrationally
In my article last week, I discussed the findings of Sara E. Gorman, Ph.D and Jack M. Gorman, MD, in their recently published book, Denying to the Grave, Why We Ignore the Facts that Will Save Us. The authors provide many examples of our irrational behavior.
We buy guns to protect ourselves, even though the data indicates they make us less safe.
We don’t get vaccinations, even though they make us safer.
Our attitude towards vaccinations is particularly perplexing. According to the authors, there is “zero” risk of death as a result of the diphtheria-tetanus-pertussis vaccine. The risk of death from those who contracted diphtheria is 1 in 20 and from tetanus is 2 in 10. Yet, we are seeing an unprecedented decrease in numbers of parents opting to vaccinate their children across the developed world.
We continue to eat fast food and text and talk on our cell phones while driving, despite the overwhelming evidence these activities may have serious adverse consequences.
If the data doesn’t persuade us to avoid potentially fatal consequences, how likely is it you can use data to persuade your clients to follow your sage advice with their investments, retirement planning and estate planning issues?
Data doesn’t persuade
The Gormans identified a number of principles that will help you understand your clients’ mindset when they are resisting your advice.
Initially, the stubbornness of your clients is not necessarily based on ignorance. The authors provide examples supporting their view that, “ignorance has clearly been shown not to be the prime factor in the formation of …nonscientific beliefs.”
Resist the temptation to “educate” your clients. It turns out that providing more information is not a successful strategy to change minds.
The authors note, “throwing more data at people…will never be enough to truly address the problem.” This is true because we tend to react emotionally and not rationally.
In future articles, I will discuss more effective ways to communicate with your clients. For now, be aware of the need for a different approach when dealing with clients who won’t follow your advice.