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Financial Planning > Behavioral Finance

These 4 Questions Reveal Clients' Hidden Concerns

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Logic is critical to effective financial planning, to be sure. So what better expert to turn to for honing logical thinking skills than the great French philosopher-mathematician-scientist who said: “I think, therefore I am”?

Indeed, Rene Descartes’ “Cartesian logic,” based on four simple questions, can help advisors uncover clients’ needs and concerns, thus leading to the best investment solutions, Raphael Lapin, Harvard-trained negotiation and mediation specialist, tells ThinkAdvisor in an interview.

Used in the initial client consultation or proposing a specific investment or making changes in a portfolio, the questions act to elicit productive discussion and help clients see a decision’s consequences “from a 360-degree perspective,” says Lapin.

His Los Angeles-based Lapin Negotiation Services, pivoting on methodology taught at Harvard Law School, provides training, coaching and dispute resolution for clients that include AT&T, Microsoft, Yahoo and individual financial advisors.

As for posing Descartes’ four questions — Lapin calls them a powerful technique to not only see the consequences of an action or inaction but the “anti-consequences” too — they are:

  1. What would happen if you did X?
  2. What would happen if you didn’t do X?
  3. What won’t happen if you did X?

And the fourth — the most challenging and tantalizing of all:

What won’t happen if you didn’t do X?

The questions need not be asked in a cluster nor in sequence; they may be sprinkled, as needed, throughout a discussion.

Lapin is author of “Working With Difficult People” (DK Penguin 2009), a guide to the art of compromise and negotiation. His training for firms and individuals focuses on a proprietary “Investigative Selling Approach.”

ThinkAdvisor recently interviewed the consultant, on the phone from his Wilshire Blvd. office. He discussed Cartesian logic as a way to “obtain critical information toward building satisfactory outcomes.” Interesting math factoid: Descartes is credited with co-inventing analytic geometry, which uses algebra for problem-solving.

Here are excerpts from our interview:

THINKADVISOR: Which of the four questions is apt to prompt the most interesting response?

RAPHAEL LAPIN: The last question, “What won’t happen if you didn’t do X?” because it really convolutes and twists your mind. It forces you to think in a way that you wouldn’t otherwise. It’s quite a difficult exercise to contort your mind into thinking what won’t happen if you didn’t do something. But when you start thinking that way, often you’ll see new angles to an [issue].

Why is it so hard to contemplate that question?

Our minds are conditioned to think about what will happen — what are the consequences? We’re not conditioned to think about: What are the anti-consequences?

When would a financial advisor use these questions?

One scenario is in the initial client consultation before they’re providing financial solutions. If the advisor is putting together a letter of engagement but the client isn’t sure, the advisor can say, “I don’t want to pressure you, but maybe I can be helpful in analyzing this for you. Let’s talk a little about what’s likely to happen if we went ahead with this relationship — and what’s not likely to happen.”

In what other situation could an FA apply the questions?

When you already have an established client and decisions need to be made about their portfolio. Maybe you’re suggesting a particular change — moving funds from one instrument to another — but the client may be a little resistant. You might say, “I can understand your resistance. Let’s talk a bit about the pros and cons.” And then walk them through the questions.

That gets the client to voice their viewpoint, as opposed to the FA’s telling them such-and-such is going to happen.

Right. You always want to engage the client in decision-making because then they feel they’re active participants rather than just being passive. You have to be very careful to engage clients in decision-making rather than impose or influence them. They’ve got to feel they’re partners in the decisions so they feel ownership over them. The questions help clients identify and understand the consequences of both action and inaction.

Why are strong probing skills extremely helpful to the financial advisor, as you write?

Because that’s going to generate dialogue. Well-crafted questions are usually the fuel that [promotes] dialogue. And dialogue will develop and build information, such as the client’s risk tolerance, needs and overall goal. You can then structure solutions around that information. But to get to that point, you have to develop a pool of information. So probing is very important.

The four questions usually “reveal unexpressed concerns” that can be resolved with minor changes, you write. Please elaborate.

Let’s say a financial advisor has a possible solution on the table. By going through this exercise, they’re able to reveal some [theretofore] unspoken concerns of the client and talk about them. Then the advisor can massage the solution a little to try to mitigate those concerns or eliminate them, if possible.

Can the questions open the client’s mind to seriously consider other options?

Absolutely — by generating more dialogue. You can say, “OK, these are some of your concerns that have emerged from this analysis. Let’s talk about them so we can improve upon the solution.”

What’s another example of how the questions can help advisors?

Suppose a client wants to put as much as 70% of their money into one particular kind of instrument. The advisor may want to go through these questions, ultimately asking: “What won’t happen if you don’t do it?” That’s when it starts getting convoluted in terms of one’s thinking. But this challenges people to think about things in new ways and get fresh insights.

So the FA isn’t telling the client that this is the probability of what will or won’t happen. They’re getting the client to discuss the potential outcomes as they see them?

Right. That’s why I find this most useful because you [the advisor] don’t want to impose and start selling and pitching: “Let me tell you what will happen if you do this. Let me tell you what would happen if you don’t do it.” Because then you get into salesman pitching mode. And you don’t want to do that.

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