The Knowledge Deficit That Costs You Clients And Assets
March 22, 2016
by Dan Solin
Michael Mauboussin: Here’s what active managers can do
The debate over active versus passive management continues as trends show the ongoing shift from active into passive funds. Q2 2020 hedge fund letters, conferences and more At the Morningstar Investment Conference, Michael Mauboussin of Counterpoint Global argued that the rise of index funds has made it more difficult to be an active manager. Drawing Read More
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I’m often struck by the differences between coaching firms in investing and coaching them in converting prospects into clients, two subjects I have written about and studied carefully. Almost everything that can be said about both topics has been written, yet advisors have a knowledge deficit about the science of persuasion.
The knowledge deficit on persuasion
This knowledge deficit is vast. This is largely uncharted territory, frequently ignored at conferences where subjects like smart beta, alternative investments and the relative merits of socially conscious investing are discussed.
Yet every advisory firm – and usually every advisor within each firm – has a unique way of trying to persuade prospects to become clients. I have yet to come across a firm that has standardized this process, even though there is overwhelming evidence to support some basic rules everyone should follow.
The typical scenario is flawed
The first thing we usually do when someone disagrees with us is we just assume they’re ignorant. They don’t have access to the same information that we do, and when we generously share that information with them, they’re going to see the light and come on over to our team. When that doesn’t work, when it turns out those people have all the same facts that we do and they still disagree with us, then we move on to a second assumption, which is that they’re idiots. They have all the right pieces of the puzzle, and they are too moronic to put them together correctly. And when that doesn’t work, when it turns out that people who disagree with us have all the same facts we do and are actually pretty smart, then we move on to a third assumption: they know the truth, and they are deliberately distorting it for their own malevolent purposes. So this is a catastrophe.
Schulz brilliantly summarized how most advisors attempt to persuade prospects to become clients. Many of the conferences that advisors attend reinforce this approach. They focus on programming to sharpen advisors’ skills, so they will be more adept at “generously” sharing information with the masses.
Unfortunately, this does not work. While it’s difficult to find accurate conversion rates for advisors, in my experience they range from 10%-40%. Even a small increase would mean significant additional revenue.
Evidence-based techniques work
I have written extensively (both in articles on this website and in my book, The Smartest Sales Book You’ll Ever Read) about evidence-based ways to convert prospects into clients. I also have coached a number of advisors as they prepare for prospect meetings. The application of the techniques I endorse could not be more different from the scenario described by Schulz. The results have been dramatic and transformational.