“Ever had a conversation with a client about money and logic got up and left the room?” Ted Klontz, Ph.D, asked the audience at the annual National Association of Personal Financial Advisors conference in Salt Lake City Wednesday afternoon.
Klontz, an author and behavioral psychologist, delivered his presentation entitled “When Logic Leaves the Room, and What We Can Do About It” to the roughly 700 fee-only advisors in attendance. He began with attention-grabbing statistics, including:
- When using cash as opposed to credit, people will typically spend 30% less.
- One in five older workers said they contribute to a 401(k) or some other type of retirement plan when in fact they do not.
“The question is why,” he said. “The answer is that close to 99% of what we do is controlled by our unconscious mind. For instance, if you use words with clients that they don’t understand, research shows that their brain will spend up to 20 seconds searching for the meaning of the word. This is 20 seconds in which they are not present in the conversation. Now think about what happens if you use a word they don’t understand every 15 to 20 seconds.They will do everything they can to appear like they are competent and understand you.”
Klontz went on to describe three main levels of the human brain, how each processes information and how it impacts communication with clients. The first level he called the “Einstein” level. This level is rational, creative and understands the notion of the abstract. The second level is “Reptilian,” meaning it is animalistic and only understands the concept of “friend or foe.” The third level is “Mammalian,” meaning it will process information in an immature manner relative to a five- to seven-year-old chimpanzee.
“Now think about this,” Klontz said. “The first level processes 2 million bits of information per second. The next two levels (or the bottom two-thirds of the brain) each process 4 billion bits of information per second. If there is any surprise when conflict occurs which part of the brain will respond the quickest?”
He explained that a type of trapdoor is present in the brain that closes in moments of confusion and conflict. As the brain begins to search for an answer, the bottom two-thirds (or the irrational section) reacts quickest. The bottom two-thirds are primal, he noted, in that
our greatest fear as modern human beings is being isolated and exiled, or as he said “thrown out of the tribe.” The brain will do everything it can to prevent this from happening.