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At this point, it’s almost universally accepted that clients’ money mindset – their behaviors, beliefs, motivations and values – play a major role in determining their financial outcomes.
Or, in other words, their money mindset heavily influences their success (or lack thereof).
(If you’re still skeptical, check out this Morningstar research that shows behavioral biases have a great impact on financial outcomes than income, age, and education!)
It could be the client who refuses to sell out of their concentrated stock position despite your best effort to lay out the numbers showing the risk it brings to the portfolio.
The numbers are no match for the fact that it’s a company this client used to work for, and thus, feels way more confident in its future than any market analyst.
And, on top of that, she worked at this company with her late husband. Selling this position severs one of her last remaining ties to him.
It could be the couple who hasn’t sent in any of their financial data despite six months of follow-up reminders.
But, the lack of follow-through isn’t based on desire. It’s the fact that any type of money task creates immediate tension for them, so it’s easier to avoid it and keep things smooth at home.
We could go on and on.
The reality is this: Oftentimes, the barriers standing between your client and their financial success boil down to how they think, feel, and behave with money (their behaviors, beliefs, and motivations).
Which is exactly why there is so much value for financial advisors to be able to change client behavior.
Of course, the ability to change someone’s behavior relies, first and foremost, on knowing what’s actually going on in the first place.
You can’t prescribe a solution without a diagnosis.
Think about it like this. Imagine you went into the doctor’s office and rattled off a bunch of symptoms that were ailing you in hopes of feeling better.
Before the doctor can prescribe something to alleviate your sickness, he first has to diagnose or assess what the sickness is.
And, imagine if he sat there listening to your symptoms and once you were done responded by saying, “Ok, I feel like you could probably have low B-12 levels.”
No doctor would ever rely on an assessment based strictly on their judgment.
He would send you to get blood work done to get an accurate assessment. And, once accurately diagnosed, the solution can be prescribed.
Yet, that’s exactly what financial advisors do with their clients every single day. It’s common to try and assess a client’s money mindset based solely on your own judgment according to what you heard.
Instead, just like doctors rely on assessments to accurately diagnose patients, advisors should rely on behavioral assessments to identify behaviors, beliefs, motivations, personality styles, communication styles, risk behavior, etc.
Imagine going into a meeting already knowing that the client prefers to be communicated with in a certain way, is prone to try and “keep up with the Jones’s” and is likely to panic if the market begins to plummet.
Armed with that information, you know exactly what behaviors to focus on changing to improve their financial success.
Obviously, this information is invaluable. But it’s also:
- Difficult to uncover this type of information (clients may not feel comfortable talking about it OR may not even be aware of what’s going on)
- Generally takes years before you learn some of these things about clients
- Even when the info is revealed, the advisor’s own biases and beliefs often dilute it
This is why client-facing behavioral assessments are on the rise.
It uncovers the information advisors need to know to predict and change behavior in an accelerated time frame and eliminates all bias from the advisors. It gets you what you need to know faster and more reliably!
In this episode, Sarah Fallaw, founder of DataPoints breaks down their behavioral assessment tools and explains exactly how advisors can use them in their practice!
Things You’ll Learn
- How to assess your client’s wealth-building potential using the six traits that predict wealth building
- The tools that help assess these traits in clients and how to utilize them to help clients
- Why clients should never take questionnaires/assessments in a meeting
- How understanding a client’s money attitude can improve communication and predict future behavior
- How to communicate to clients the benefits of understanding their beliefs and behaviors
- How to know whether your risk tolerance questionnaire actually helps predict their future market behavior
- How to select which traits and characteristics in clients that need to be changed
- Why it’s so important to bring awareness to a behavior before you can change it
- How using behavioral assessment tools can actually serve as a way to measure the behavioral value of advice
- The four behavior assessment tools DataPoints offers advisors
About Sarah Fallaw, Ph.D.
Sarah Stanley Fallaw, Ph.D. is the co-author of The Next Millionaire Next Door and the founder of DataPoints LLC, a behavioral assessment advisor fintech company. DataPoints created the industry’s first assessment of wealth potential based on The Millionaire Next Door.
Her research on psychometrics and financial psychology has been featured in conferences and publications including Financial Planning Review, Industrial and Organizational Psychology, and the Journal of Financial Services Professionals. Sarah received her Ph.D. in Applied Psychology from the University of Georgia in 2003.
Other Episodes You’ll Like On Tools To Help Change Behavior
- Episode 4: Behavioral Insights to Maximize Anxiety-Adjusted Returns w/ Greg Davies
- Episode 6: Bringing Behavior To Life In Financial Planning w/ Neil Bage
- Episode 18: Understanding Client’s Money Mindset In Order To Maximize Well-Being w/ Sarah Newcomb
- Sarah Fallaw LinkedIn
- DataPoints Website
- The Millionaire Next Door: The Surprising Secrets of America’s Wealthy by Thomas Stanley
- Thomas Stanley
- Influence: The Psychology of Persuasion by Robert Cialdini
- Persuading Prospects To Become Clients By Leveraging “Influence” Techniques by Evan Beach (Nerd’s Eye View)
- Brad Klontz – Money Scripts
Whenever you’re ready, there are 3 ways I can help you master the human side of advice:
- HSOA Masterclass: An 8-week group program on building trust & connection, aligning money and life, and delivering frictionless advice.
- The Ultimate Discovery Meeting: A proven framework to seamlessly convert prospects into life-long clients in one meeting.
- HSOA Community (COMING SOON!): An online space to meet, collaborate, discuss, brainstorm, learn and grow with other advisors passionate about the human side of advice
If you’re interested, let me know here.