A five-step process for building trust

Clients don’t leave because of poor investment performance. Overwhelmingly, they leave because of a weak relationship, says a financial psychologist.

Daniel Crosby, chief behavioural officer with Nebraska-based Orion Advisor Technology LLC, spoke Wednesday at the annual FP Canada Financial Planning Conference about how financial advisors can build stronger relationships with their clients.

When people don’t trust their advisors, they are less likely to follow their advisor’s advice, Crosby said: “There’s this big gap between knowing what to do and actually doing the right thing.” Almost nine out of 10 clients leave their financial advisors because of a poor relationship, according to the 2003 book A Millionaire’s Advisor by Russ Alan Prince and Brette Van Bortel.

Crosby laid out a five-step process for financial advisors to build a connection with clients and deliver advice in a way that sticks.

1. Develop empathy

The more you let the client talk about themselves, the more likeable they will find you, Crosby said. However, he found that advisors tend to talk 75%–80% of the time in the typical model, where the client is a “humble peon who has come to the wise wizard.” He suggested advisors restructure their meetings to let clients do 65%–70% of the talking.

Clients fear that their advisors will judge them for poor financial decisions, Crosby said. But advisors should express curiosity about why clients made their decisions instead.

2. Normalize behaviour

“No behaviour is irrational when you know someone’s story,” Crosby said. Decisions that may seem irrational to a financial advisor will make more sense when they understand the emotional basis for the choice.

If a financial advisor tries to change a client’s feelings about an investment with facts and figures, the client might respond by clinging to their old way of thinking, Crosby said. “We cannot jump straight to criticism. We have to normalize … and understand why someone is engaging in the behaviour,” he said.

3. Look for purpose

Financial advisors can use people’s tendency to look for purpose and meaning to help them set long-term goals, Crosby said. For example, a study conducted by SEI Wealth Network during the 2008 financial crisis found that 65% of people who had a goals-based approach made no changes to their portfolios, while 50% of those with a traditional financial plan decided to fully liquidate their portfolios.

If a client wants to save up for their children’s education or their own retirement, advisors can use that purpose to help motivate them, Crosby said. “Let the purpose do the hard work … because the truth is you cannot solve an emotional problem at the intellectual level.”

4. Provide proof

Once an advisor has determined a client’s emotional motivations regarding finance, the next step is to use the human desire for “social proof” to shape behaviour, Crosby said. He categorized social proof into four areas: statistics from research, opinion from the client’s peers, advice from experts in the field and testimonials from the advisor.

“Planners can actually use this herd instinct to good effect by bringing in multiple points of view,” Crosby said. For example, advisors could provide actionable advice followed by citing studies from universities like Harvard and successful investors like Warren Buffett.

5. Reinforce success

Advisors should give clients some homework to make the relationship feel like a partnership, Crosby said. “We want them to take some initiative, and we know that a behaviour in motion tends to stay in motion.”

The advisor can divide assignments into incremental steps, where the first step is so small that the client cannot possibly mess it up, he suggested. This will help the client slowly come around as they realize they are capable of producing the desired financial behaviour.

Bring a strong close to each client meeting

People remember the first and last part of every interaction best, Crosby said. Therefore, advisors should close each meeting by reminding clients why they want to do something and how the process aligns with their goals.

“It’s only after we connect with our clients on an emotional and a relational level that we’re going to have any sort of bandwidth to do the rest of the work,” he said. “Facts only matter when our clients understand the purpose that they serve.”