From the August 2012 issue of Investment Advisor • Subscribe!

Inside Information

What would it be like if advisors knew what their clients were really thinking?

I’ve never been a big fan of focus groups. My skepticism dates back to the early ‘90s, when I was an editor on the team that launched Worth magazine. Like many consumer publications, we used focus groups to test everything from cover designs to potential story ideas. Our marketing team asked people to tell us what they thought they would like to see in a future issue. It seems to me that most people are woefully bad at predicting what they will like, which is why magazines need editors.

Then one day, I was trying to stay awake while watching yet another focus group from behind the one-way glass, as the participants were thumbing through the latest issue and sharing their “wisdom” about the table of contents, feature layouts and what fonts we should use. Suddenly, one of them piped up with: “It would be great if you had a section in here that gave us advice about personal finance.” All the other participants started nodding their heads in agreement. That got my attention, as I was the editor of the section that gave advice on personal finance, and apparently, not one reader out of those 15 could find it.

The problem was that most people flip through magazines looking at the right-hand pages, and in an effort to keep the advertisers happy, our publisher had put my section on the left-hand pages—rendering it virtually invisible. Based on that feedback, I was able to convince the publisher that the personal finance section warranted a more prominent position in the magazine. 

I was reminded of that focus group while watching the streaming video of Michael Maslansky’s session at the Loring Ward National Education Conference in Monterey in June. The CEO of Maslansky Luntz and Partners uses his expertise in language and messaging to help litigators, non-profits and many Fortune 500 companies—including Bank of America, Morgan Stanley and UBS—to communicate more effectively about products, brands and issues. He is the author of “The Language of Trust,” and you probably saw his firm’s trademarked polling and focus group methodology during the 2010 elections, where it enabled CNN to show live audiences’ real-time reactions to speeches as they were being given.

If you’re anything like me, you probably have reservations about today’s high-tech quantifying of human behavior, but Maslansky appears to use his knowledge and expertise to help people better understand, and therefore better help, the people they are trying to serve. Still, to fully grasp the power of Maslansky’s process—garnered from over 100 research projects—you really have to see it. It’s like a focus group on steroids. For independent advisors, who have many ideas about what their clients are thinking but very little data to back them up, it’s obviously an eye-opening, mind-bending experience.

At Loring Ward, Maslansky’s program started with a panel consisting of 13 local investors between the ages of 55 and 70 with at least $500,000 in investable assets. Half of the panelists were retired and all had financial advisors. The panelists were seated across a broad stage with a handheld device about the size of a cell phone, with a circular dial. Each panelist could indicate a favorable or unfavorable reaction by twisting the dial. The panelists’ reactions were electronically aggregated to show a composite real-time reaction on a large screen on the stage.

The panelists were shown videos of advisors answering six questions that prospective clients would be likely to ask. The 13 panelists were asked to indicate whether they felt more likely or less likely to engage the advisor who was speaking, second by second, as he was giving his answer. Altogether, this provided the advisors in the audience with an unparalleled insight into how investors truly feel about the various phrases that advisors use to explain their services, their market outlook, what differentiates them, their process, how they get paid and their request for referrals.

“Yet, even though you talk to clients every day, it’s very difficult to get into their heads: to know what it is that they are really thinking,” Maslansky told the advisors in the audience. “Humans, by nature, don’t always tell people the whole story.”

Maslansky explained that the results would appear on the big screen as a flat line that either trended up or down: “The middle of the graph is 50. That’s neutral; not good and not bad. A response of 70 or above means what’s being said is really working. Between 50 and 70 you’re not hurting yourself, but you could probably be doing a better job of engaging your client or prospect. If you’re below 50, you really should just shut up because every time you open your mouth, you’re really doing damage to you credibility and to your ability to sell your client.”

The answers that advisors gave (which were the normal answers they used in their practices, I’m told) did, indeed, show some dramatically different investor responses. For instance, when one advisor answered the question, “Why should I work with your firm?” by saying he had a “great investment method, based on a disciplined, scientific strategy that won a Nobel prize and has been tested for 40 years,” the responses were negative, negative and negative. In fact, not one panelist felt positive about this pitch. “He came across as a salesman,” said one investor, capturing the sentiment of the panel.

In answer to the same question, another advisor talked about being independent and working for the client rather than a large company, which enabled him to look out for his clients’ best interests, all of which tested well into the very positive range. “He said what he would do for me,” said one panelist, “rather than giving me a pitch.”

The investors also liked presentations that included financial plans, setting realistic expectations, financial goals, considering their values and people who are important to them, and especially, a team approach, which indicated to them expertise beyond one person. They didn’t like any words they didn’t understand, such as volatility, outsourcing and particularly counseling. “It’s a negative word,” said one panelist. “Nobody wants to go to ‘counseling.’ I’d rather go to the dentist.”

The panel of investors gave the highest positive scores of the session to the advisors talking about how they got paid. All were direct, clearly stating they had a 1% of assets fee up front. They then talked about what they would do for that fee, including keeping their clients from making mistakes, especially when the markets were down; keeping clients from blowing up their financial plans; making less when clients’ assets were down; and working even harder when the markets were down and they got paid less. Maslansky summed up the effectiveness of these answers this way: “We see a lot of advisors try to avoid giving out the number,” he said. “The best answer to a fee question is a fee. If you don’t have the number in the first two sentences, you’re toast. Then they think that you’re hiding it. Say you charge a 1% fee, and then tell them what you do to earn it; it’s much more effective.”

These, and the responses to the other questions that the advisors answered, illustrated a surprisingly small number of communication mistakes that advisors make—yet, according to Maslansky, they make them with great regularity. A big one is talking about themselves rather than about the clients and what the advisor will do for them. “Most advisor/client conversations quickly become more about the advisor and less about the client,” he said. Then there’s overselling: “You can’t offer a perfect solution, and investors know this. Tempered promises have more credibility.”

The most prevalent mistake is the use of industry jargon, which the vast majority of investors don’t even begin to understand, and which consistently tested negatively: Volatility, asset allocation, accumulation, distribution, longevity risk, investment policy statements, CFP, the list is nearly endless. “This is where the industry falls down every day,” he said. “There is so much jargon that you don’t even recognize it. Advisors need to constantly remind themselves that investors don’t know what you think they know.”

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