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Episode Summary

Let’s assume for a second that we live in a purely rational world.

The only thing that should matter for a prospective client evaluating your services is the quality of your advice.

And the only thing you should have to do with clients is show them numbers, make recommendations, and expect them to follow through with clarity and confidence.

But, we don’t live in a purely rational world.

We live in a world where our decisions and perceptions are often subconsciously driven by invisible influences.

For example, you can’t simply tell a prospective client that you’re trustworthy and credible.

So, in order to determine that, they’re constantly evaluating things that might signal trust and credibility but have little to do with either.

Things like:

  • How you dress
  • The credentials/awards in your office
  • How you communicate
  • The car you drive

Should any of these things be considered indicators of trust and credibility?

No.

But are they?

Yes.

Or, think about when you go to present a retirement projection to a client that looks like this:

 

psychology of monte carlo

The client may not know how to interpret probabilities, or they might latch onto the 2% probability of “failure” rather than the 98% probability of success.

Should the way you communicate information to clients influence their decisions and behavior?

No.

But does it?

Yes.

Or, maybe you offer a free financial plan for prospective clients. Another planner does the same exact work but charges an upfront planning fee.

The difference between the two has a direct impact on how clients quantify the value of ongoing planning advice.

Should the way you charge up front influence the ongoing value of the service?

No.

But does it?

Yes.

Fortunately, Derek Tharp researches these topics and applies them in the work he does with clients. He’s going to share with us the information we need to better understand the psychology of communicating and delivering advice.

Things You’ll Learn

  • The invisible influences that influence client and prospect decision-making
  • What are prospective clients subconsciously assessing to determine trust and credibility
  • How what you wear signals different things to different people
  • The psychological barriers inherent within Monte Carlo and probability-of-success-driven planning software
  • How to improve the way you communicate probability of success
  • The “Guardrails” approach that leads to more confidence in retirement spending
  • The “Mapquest” vs “GPS” approach in financial planning
  • Should you offer a free initial financial plan
  • How initial fees for planning impact the perceived value of ongoing planning
  • How to offer test drives that convert prospects into life-long clients

About Derek Tharp, Ph.D, CFP®, CLU®, RICP®

Derek Tharp is the lead researcher at Kitces.com and an assistant professor of finance at the University of Southern Maine, and the founder of Conscious Capital, his RIA where he works with clients. 

He also contributes to The Wall Street Journal, Journal of Financial Planning, Financial Planning Review, and Journal of Financial Counseling and Planning among others.

Other Episodes You’ll Like On The Psychology of Advice

Resources

Derek Tharp

Derek Tharp LinkedIn

Derek Tharp Twitter

Conscious Capital

Income Lab

Certified Financial Planner D.J. Commercial

Optimal Interior Design Of A Financial Advisor’s Office

A Monte Carlo 50% Success Probability Can Work (Kitces.com – Derek Tharp)

Reframing Monte Carlo Results To Increase Trust In Dynamic Retirement Spending (Kitces.com – Derek Tharp)

Using Probability-Of-Success Driven Guardrails To Manage Safe Retirement Spending (Kitces.com – Derek Tharp)

Do Free Financial Plans Reduce The Value Of Ongoing Advice? (Kitces.com – Derek Tharp)

Managing The Theater Of A Financial Planning Meeting (Kitces.com – Derek Tharp)

Behavioral Investment Counseling by Nick Murray


 

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