Beyond Behavioral Finance
Social science studies confirm what many advisors witness firsthand when they attempt to hold number-based discussions with clients. Eyes glaze over and motivation for financial planning and decision-making visibly withers. Often, behavioral biases kick in as clients instinctively seek a quick escape to a fast conclusion. Why this happens has much to do with how we process information.
Our Instinctive Duality
As humans, we are literally of two minds. The dominant portion, which developed first and well before we acquired language skills, is entirely instinctive. It is emotionally driven, reacting almost instantaneously to what is seen. It tends to be unresponsive to number-based conversations.
The other part of our brain developed later and allows us to add context to what we see and hear, processing words and numbers into more complex thoughts and actions. Given its tasks, the rational part of the brain takes a little longer to process information. If we don’t train ourselves to wait a beat, it can sometimes lose out to more quickly made, emotional decisions.
“These two parts are like a rider on the back of an elephant,” explains social psychologist Jonathan Haidt.1 Haidt further observes, “The rider’s inability to control the elephant by force explains many puzzles about our mental life.” He implies that the secret to self-improvement—and, we argue, to making sound financial decisions—comes from learning to collaborate with the elephant.
Engaging the Elephant
Processing information and making informed decisions works best when inputs occupy both parts of our brains. Or, more to the point, it helps if an aspect of a message engages our inner elephant long enough for our reasoning to kick in and perform any necessary thinking to reach a decision.
Therefore, the key to communicating the facts and figures that characterize financial services communications—the very things that instinctively frustrate the inner elephant—is to establish an emotional connection first.
- Listen to be heard. Researchers find that conversations starting with a statement like, “Tell me about your current situation,” are more likely to involve a client than those that begin by telling them about market performance. The request is more likely to help a client see how the discussion that follows relates to them. Similarly, discussing performance by benchmarking it to a client’s objectives, rather than an index, can create personal context much faster, fostering a quicker understanding of how what happened is relevant to achieving long-term goals.
- Choose words carefully. Through his research, psychologist Albert Mehrabian found that 93% of communication is nonverbal. This implies that nonverbal cues, such as facial expressions, hand gestures and body language can be critical to understanding the words that are spoken.2 Because written words alone may not fully convey a message in the way it is intended, the words you choose have to work harder to be effective. They need to compensate for the missing visual cues by evoking references that will still result in emotional attachment.
- Inspire to inform. Telling a compelling story is important. Whether stories are told orally, visually—through a video—or in a written narrative, they can create the necessary emotional commitment by leading the audience to see their own personal circumstances and aspirations in the words. Stories can be used to make a financial conversation easier to follow.
- Draw a picture. Because our brains are programmed to remember pictures longer than words, using images to reinforce and deliver messages can be very effective. This is where the wisdom of the saying, “A picture is worth a thousand words,” comes into play. Using ownable graphics—images that are unique to your brand—can make your message even stronger. Another way to create visual bridges to your messages is through charts and graphs and the unification of both through infographics (information graphics). Such visualizations of data can convey facts and figures in a way that quickly engages both sides of the brain, enabling a smoother delivery of information.
 Jonathan Haidt, The Happiness Hypothesis, Basic Books, 2006.
 Albert Mehrabian is Professor Emeritus of Psychology (UCLA). The 7%-38%-55% rule referenced here first appeared in 1967 in “Inference of Attitudes from Nonverbal Communication in Two Channels,” Journal of Consulting Psychology 31 (3): 248–252.
 Daniel Kahneman, Thinking, Fast and Slow, Farrar, Straus and Giroux, 2011.
 Cass R. Sunstein and Richard H. Thaler, Nudge: Improving Decisions about Health, Wealth, and Happiness, Yale University Press, April 8, 2008.
 Michael Finke, “This Is Your Client’s Brain on Finance,” Research Magazine, November 2012.