Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives
If you lapse into a lecture about the overwhelming evidence supporting passive investments, remember you might as well be showing the prospect an article about bird feeding.
Let me explain. Here’s a situation familiar to many advisors.
Since its inception in January 2012, the long book of the Voss Value Fund, Voss Capital's flagship offering, has substantially outperformed the market. The long/short equity fund has turned every $1 invested into an estimated $13.37. Over the same time frame, every $1 invested in the S&P 500 has become $3.66. Q1 2021 hedge fund Read More
You meet with a prospect and explain the benefits of index-based investing. The initial feedback from the client is something along these lines: I’m just not persuaded that my broker and I can’t do better.
You have prepared for this response. Here are the options available to you:
- Eugene Fama and Kenneth French are giving a presentation next door. They have kindly agreed to meet with your client an explain the data supporting your investing advice;
- Present the prospect with an article on bird feeding and ask him or her to read it;
- Show the prospect information about the projected “retirement tsunami” caused by lack of saving, chasing returns, and generally irresponsible investing behavior.
Which option should you choose?
Would you be surprised to learn that options 1 and 2 are both unlikely to change the mind of your prospect?
Would you be even more surprised to learn that Fama and French were no more persuasive than the article on bird feeding?
Study on persuasion
That’s the likely outcome, based on a study published in August 2015 on efforts to counter anti-vaccination attitudes of parents. In the study (discussed here), researchers tried three approaches in an effort to change the belief of parents that standard vaccinations of their children could be harmful to their health:
- A control group was shown a statement about bird-feeding, which had nothing to do with the relationship of vaccinations and autism. Reading this statement (as expected) had little impact on the mindset of the participants. But here’s the surprising finding. The bird feeding statement had about the same impact (almost none) as the scientific data from the Centers for Disease Control.
- A third group was shown graphic images about the terrible effects contracting measles, mumps and rubella could have on children. The group also read the story of a woman whose 10-year old son almost died from measles. No effort was made to persuade this group that the vaccination was safe. This information “successfully countered people’s anti-vaccination attitudes by making them appreciate the consequences of failing to vaccinate their children.”
One of the authors of this study had this advice for those engaged in a debate that could become polarizing (like active versus passive): “Try not to be directly confrontational. Try to find common ground, where possible, and build on that.”
Read the full article here by Dan Solin, Advisor Perspectives