9 behavioral science ideas to achieve better outcomes for clients

Personal finance: Putting the psychology of motivation to work

Key Points

  • You're an exceptional planner. Are your motivational skills just as sharp? An advisor—and behavioral finance aficionado—shares his takeaways from the leading books on decision-making and motivation. Applying these ideas to the planning process may just change the way you engage clients.

Client motivation—the emotional factor

Top thinkers in behavioral science and economics have long known that "rational economic actors," i.e., human beings, are driven more by emotions than by logic. Yes, this applies even to well-informed, well-intended investors. The question is, What’s to be done about it?

Tim Maurer, a financial advisor for 20 years, has made it his mission to bring the lessons of behavioral research out of the lab and into advisors' practices. In his IMPACT® 2017 presentation, "Behavioral Finance: The Science of Client Motivation," he presented at IMPACT® on that very subject and shared some of his go-to educational resources and personal insights that help advisors tap the science of motivation to inspire clients.

Maurer believes that our values and goals determine our work satisfaction and overall happiness, and they also drive financial decision-making. In other words, as Maurer puts it, "personal finance is more personal than finance."

How common is this scene? Your client is sitting in front of you in your office in tears. You can't ignore it, but that's what Maurer and many advisors were taught to do: avert your eyes, don't put a hand on their shoulder. But empathy is the practice of relating to people's emotions. And if emotions drive behavior, and if advisors want to influence behavior, then exhibiting empathy is important. The right thing to do, says Maurer, is to reach out and offer them a tissue.

"What we learn from science is that emotions are like waves," he says. "They build, they crest, and they fall. So, the very best thing we could do when clients become emotional is allow them to be so. Maintain eye contact. Stay composed. So that when it passes, they feel comfort in knowing you were okay with them expressing that emotion."

This is one scenario involving emotions, but Maurer suggests that emotions are coming into play much more often than you’d think. And if you want to be more successful at motivating clients, you need to develop a fundamental understanding of the psychology behind how people make decisions. Here are some of Maurer’s top ideas from the foremost thinkers on the topic.

9 game-changing ideas from behavioral psychology

1. Decision-making is controlled by two processes: System 1 and System 2

System 1 (emotional) is intuitive and fast. Sometimes we call this our gut instinct. System 2 (logical) is slower and more deliberate. According to social psychologist Daniel Kahneman, author of the book Thinking, Fast and Slow, while we'd prefer to approach important financial decisions rationally, the majority of those decisions are made using System 1. System 2 merely rationalizes those decisions. "In his book," Maurer says, "Kahneman is calling financial advisors to the carpet, saying it is a mandate to have at least a basic understanding of this stuff."


2. The emotional elephant always trumps the logical rider.

A bit more tangible than Systems 1 and 2 is the metaphor of an elephant and a rider. In The Happiness Hypothesis, Jonathan Haidt suggests that we think of emotions as an elephant and logic as the rider. When the two come into conflict, the larger, stronger elephant always wins. Maurer points out some real-life examples, such as the mother who continues to pay her daughter's exorbitant credit card bill to her own financial detriment or the nervous investor who cashes out every time markets reach new highs.


3. Advisors must become even more fluent at speaking to emotions.

Advisors have to know their stuff—be fluent in the ideas and the language of finance. But, Maurer points out, that stuff now includes knowing how to "speak elephant." Lighting the Torch, by George Kinder and Susan Galvan, sheds light on just how central client emotions are to the financial planning process and—more importantly—how to work with them. While advisors are natural relationship builders, they must constantly hone their craft. According to Maurer, this might mean talking less about rates of return and asset accumulation and more about a client’s dreams or life goals and coming up with a financial strategy to achieve them.


4. The elephant is a meaningful part of the solution.

Maurer warns that many right-brained advisors may write off the moody elephant as a problem. However, in their book Switch, Chip and Dan Heath detail the tremendous strengths of the instinctual elephant that can help overcome some of the rider's crippling weaknesses, such as the analysis paralysis that can happen when a client has too many investment options. Maurer suggests that to harness the quick-thinking power of gut instincts, you must ensure that the elephant doesn’t get worn out. Simplify everything you can about the client experience. Take care of the small details to free up important decision-making space.


5. Sometimes it's impossible to act without intuition.

There are many situations in which the logical part of the brain just doesn't perform as well. In his book Blink, Malcom Gladwell gives many true-to-life examples, such as an art expert spotting a fake statue in seconds after museum antiquities experts failed for months to see it. Maurer turns to baseball for another. "Kids are taught to keep their eye on the ball when they bat. But the eye can't follow a 95-mile-per-hour fastball. Yet, big league hitters hit them. Because they train their instincts to do what the slower part of the brain cannot." Similarly, advisors can train clients to trust their intuition, to resist calling every time the market takes a downturn.


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6. Err on conservatism because of the endowment effect.

We overvalue what we own and undervalue what we don't. The same is true of investors. This is the idea behind risk aversion. People feel more pain from a loss than pleasure from a gain. Richard Thaler and Cass Sunstein, in their book Nudge, point to automatic 401(k) enrollment. Participation rates in employee-sponsored retirement plans were low because distant gains were hard to justify in the face of near-term losses. But when auto opt-ins were introduced—and emotional decision-making removed—participation rates climbed roughly 80%. The endowment effect, Maurer says, is why advisors should err on the side of conservatism in portfolio construction.


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7. It needs to be their decision.

People are more driven by their intrinsic motivation than by a carrot or a stick. In his book Drive, Daniel Pink provides a primer on the science of motivation and how true motivation comes through autonomy, mastery, and purpose—not from someone prodding you to act. People enjoy and commit to a practice they believe they can master. Because people respond more positively and enthusiastically when they feel they have autonomy and choice, Maurer says that advisors should reframe their client recommendations as "you can" rather than "you should."


8. What to do and how to go about it are rooted in why.

Taking inspiration from Simon Sinek's classic TED talk "Start With Why," Maurer encourages advisors to focus their time on what drives clients (the why). Because what to do and how to go about it are rooted in why. He says why is emotional and has everything to do with values. When advisors tie the client’s why to their recommendations, they can connect emotionally and spark motivation. The why becomes a source of resolve, empowering clients to stick to something through the hard times. Every recommendation, says Maurer, should somehow represent the client's values and goals.


9. Bad habits can't be eliminated, but they can be transformed into good habits.

Every habit follows the same structure—a habit loop—according to Charles Duhigg. In his book The Power of Habit, Duhigg explains that behind every habit is a cue that triggers a routine that leads to a reward. Because of this universal structure, any habit can be changed. Simply keep the cue and the reward but change the routine. The practical application for advisors, according to Maurer, is to build good habit loops using defaults. For example, when clients get their standard cost-of-living raises each year (cue), ask them to automatically increase the amount they’re putting toward their 401(k) (change in routine). They feel good knowing they put their money to work (reward). 


So, what next?

Tim Maurer's challenge to advisors is to find three insights from the list above that you can put to work in your practice. Behavioral research is abundant, but its application to mainstream personal finance has barely scratched the surface. You have the opportunity to get out in front of conventional practices—to start making personal finance more personal.

Tim Maurer is a speaker, wealth advisor, and director of personal finance for Buckingham Strategic Wealth and the BAM ALLIANCE, a collective of over 140 independent advisory firms with common values and goals. He is the author of Simple Money and a contributor to Forbes and CNBC. His work has been featured in the Wall Street Journal, the New York Times, and U.S. News & World Report, among others. Connect with him on Twitter and LinkedIn.

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