This Is a True Story

In preparing for a trip to South America, I'd already agreed to receive eight vaccinations when my doctor asked me if I wanted to get one for spinal meningitis. Not wanting another shot, I said, "I don't think I'll really need it. I'll pass."

"Fine. It's up to you," my doctor said. "But I should tell you that one summer my boyfriend and I flew over to Europe, and he caught spinal meningitis on the flight. He died in the hospital the very next day."

I blinked. "I think I'll have the vaccination after all, please."

Shows like Survivor,

The Real World, and Big Brother are proof: people are intrigued by stories about real people. When talking with clients, don't forget this

Stories motivate people. I assumed my doctor was telling me the truth. But even if it was a story about someone else she knew, it would have been just as powerful. Think about this for a moment. She could have given me all kinds of information and statistics about the probability of catching spinal meningitis, the expense of curing it if it could be cured, and my chances of dying from it. Instead she told me a story. She didn't have to prove anything. And the story motivated me to take action.

Stories are very powerful motivators, but it seems that storytelling is almost a lost art in America's financial services industry. Many financial advisors, particularly those in the investment arena, try to convince their clients how smart they are by how much detailed data they can provide. They focus on trying to prove things in order to motivate their clients and potential clients to take action. But facts, statistics, and data all speak to the left or logical side to the brain. And the left side of the brain is the brake on human behavior.

Tell stories that clients can relate to. One of my clients who is extremely knowledgeable about Modern Portfolio Theory and who has a master's degree in finance and taxation was asked to speak at an investment seminar in Fort Worth, Texas. The audience was full of professionals, executives, and business owners who were very successful and intelligent, but didn't know a lot about high finance. So, not surprisingly, when my client began talking about efficient frontiers, coefficient correlations, dissimilar price movements, book-to-market values, and index-based versus active management, he soon lost his audience. Their attention drifted off and he never got it back.

The advisor who had organized the seminar said later that he thought the seminar would have been more effective if the speaker had told the audience stories instead of providing a lot of technical information. "In Fort Worth, the investors relate more to stories," he said, "and it's really good if they have horns and hooves in them." Remember that many stories in the Bible are based on sheep herding, a dominant occupation of the time.

For future meetings, the advisor put together a great presentation that included wonderful visuals and a story that he felt people in Fort Worth could relate to. His illustration showed a slide of a small herd of white sheep with one black sheep standing in the middle. The herd, he said, represented the market and the sheep represented the various investment managers in the stock market. His next slide showed all of the white sheep wandering off a cliff with the black sheep standing resolutely on solid ground - clearly the only safe one in the crowd.

Now here's a story they could all relate to. The black sheep was doing well when the crowds were doing poorly. The clients didn't have to remember any statistics or theories. All they needed to remember was that they wanted the manager represented by the black sheep.

When I first started in the financial services industry in the early 1980s, we learned stories to sell mutual funds. The fund companies had actually turned this into an art. We told stories about prosperous clients who had invested in their growth funds 40 years ago, and compared them to the less fortunate people who had not. These stories clearly demonstrated the benefits of long-term investing in equity mutual funds. They were much more powerful than mountain charts, because they illustrated the effects on people.

Use an analogy, show a chart. Analogies are like stories, only different. They usually start with, "Investing is like _______" and you fill in the blank. One advisor in a metropolitan area has developed a great analogy he shares with clients who want to switch their investments when they become unhappy with the performance of one asset class or mutual fund.

He says something like this: "Switching mutual funds to increase performance is a lot like switching lanes in a traffic jam on the freeway. Have you ever been in the fast lane and switched to the middle lane because it was moving faster? But as soon as you switch lanes, what happens to the new lane you are in? It slows down, and the one you were in speeds up, right? Well, that same thing happens when you try to switch funds. It's a no-win game." The advisor illustrates his point not with an abstraction, but by drawing on something that his clients have experienced personally.

He often reinforces this analogy by showing the client a graph of an investor's portfolio who bailed on a mutual fund that was "going too slowly." The graph clearly illustrated the negative consequences of trying to time the market. Stories that draw on your clients' personal experiences can clearly illustrate the potential loss of switching and help them feel more comfortable with staying where they are.

Use stories to manage expectations. One of the most important uses of stories is to educate clients to become successful consumers of your investment management services and advice. Managing their expectations and fears is an important part of the educational process.

In the early 1990s, an advisor in Canada had a client who invested a million dollars at a market peak and soon thereafter watched his portfolio drop to about $850,000. Obviously, the client was very unhappy and called the advisor. The advisor was able to convince him to stay in the market, and today, the portfolio has grown to about $2.6 million.

The advisor now tells this story to every new client and draws a graph on legal pad showing where the investor's portfolio started, how it went down, and where it is now. When clients get nervous at a market pullback, he simply retells and redraws the story for his clients. He says this story clearly impresses his clients with the benefits of staying invested long-term. This simple story has helped many clients do the right thing during a market correction. Without it, many of them would have bailed at the worst possible time.

Tell a story, ask a question. In one of Nick Murray's columns, he wrote about a mutual fund that generated 89% return in one year, but the investors lost $20 million in the fund. Tell clients about this fund, then ask them how this fund performance is possible. (Answer: the fund went up 120% through September, so investors poured money in the last quarter. During the last quarter the fund sharply lost value, dropping from 120% net return to only an 89% return. These investors had bought high and sold low. Many of them, disappointed with their losses, sold out and put their money somewhere else.)

There are many stories, analogies, metaphors, and examples you can tell your clients to illustrate how unproductive it is to chase hot funds and keep them on track to achieving their financial goals.

Even numbercrunchers like stories. I was a wholesaler for a number of years and sold real estate limited partnerships in the mid-'80s. Often, during the presentation, a financial advisor would ask me a question. I would always respond by asking: "Do you want me to answer that with numbers, or would you like me to illustrate that with a story?" I was surprised that even in the financial planning profession, most of the people preferred a story.

A story about a motivated employee who trimmed expenses or closed a lucrative lease deal was a much more powerful selling tool than an illustration of rental increases and how they affect property value. Numbers are very useful, but they speak to the head. Stories speak to the heart. If you tell stories to your clients to help them understand how the markets work, it will keep them invested when the markets turn rocky.

Estate planning is one area that people find extremely confusing. Use real case studies to illustrate the benefits. People can clearly understand the benefits if you tell a story, even if they'll never understand the tax codes.

Use stories to inspire action and commitment. The spinal meningitis story I shared at the beginning of this column scared me into action, but stories can also be used to inspire.

A number of years ago I was in Australia with some friends in the wine-growing area of Hunter Valley. We had gotten up about eight o'clock in the morning and visited a number of wineries, and by noon, the last thing I wanted was more wine tasting. While my host visited with the winemaker, I sat on the couch and rested my eyes.

But the winemaker started to tell a story about a French woman who had visited his winery the week before. When she arrived, she was distraught because she couldn't find any Australian wine she liked. "Well," said the winemaker, "it must be hard, coming from France where they make some of the world's finest wines. But I wonder if you would do me the honor of tasting my Chardonnay. This is the wine I am most proud of in our vineyard."

He poured the French woman some of his flagship Chardonnay. She held up the glass and looked at the wine. She swirled it, smelled it, and finally tasted it. "This is the best wine I've tasted in all of Australia," she said. "I'll take a case."

Suddenly, I was a lot more interested in this winemaker's wines. I jumped to my feet, went directly to the counter, and bought a bottle of Chardonnay for myself. If the wine was good enough for the haughty French woman, it had to be good enough for me. The simple, short story had turned me 180 degrees and transformed me from a worn-out, skeptical shopper to an enthusiastic buyer.

You probably can think of specific stories from your own life that caused you to do something that you hadn't planned to do. Don't be afraid to share these stories with clients. As the technical side of our business becomes more and more complex, you will need to have more effective communication skills. Use the power of stories to educate and motivate your clients - and help both of you to live happily ever after.

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