Dr. Daniel Crosby, Chief Behavioral Officer
The numbers aren’t pretty. According to a 2016 study conducted by Northwestern Mutual, 62% of Americans do not have a financial advisor of any kind. And while not getting any advice is inadvisable, the numbers are bleak even within the cohort who are paying a professional, with only 40% of those individuals believing that their advisor exhibited long-term commitment and provided tailored attention.
But financial advisors aren’t alone in giving advice that is unequally distributed and unevenly executed. Study after study shows that less than half of Americans seek medical care for an illness, and among those that do visit a doctor, only about half of them take their medicine as directed. The result in both finance and medicine is disheartening: the vast strides we have made end up being truly taken advantage of by less than a quarter of the population. The concerned advisor naturally asks, “Is there more that we can be doing to more equitably distribute this life-changing knowledge?”
A 1970s study of physicians found only 25% of them acknowledged any culpability in patient non-compliance, an attitude that I believe to be widespread among financial advisors today. If we are to begin to address this problem, we must acknowledge as a profession that not all advice is created equal and begin to be students of advice that sticks. As Dr. Moira Somers says in her book, Advice That Sticks, most financial advisors provide good advice that is badly given.
Luckily, an organization no less impressive than the World Health Organization has provided five pillars of “stickiness” for us to consider when designing advice delivery systems for maximum uptake. To increase memorability, these five facets spell out the word FACTS (source: Advice that Sticks by Dr. Moira Somers):
- Financial history – family money scripts, previous mistakes and successes with money, risk taking capacity, psychological comfort talking about money
- Advice characteristics - easy or difficult to follow, complex or simple, immediate versus future sacrifices and payoffs
- Client characteristics – readiness to change, ability to delay gratification, intellectual and emotional maturity
- Team and advisor characteristics – support for change, level of (or lack of) warmth and acceptance, frequency of follow-up, processes to handle impasse
- Social factors - default behaviors, level of social support, access to resources, family dynamics, social stigma involved with change
Understanding the five dimensions that good advice considers, I want to provide some practical next steps for those interested in giving stickier advice, many of which are drawn from Dr. Somers excellent book. As you review each of these five pillars, please review the provided checklist and give yourself and your organization a “stickiness score”, looking for ways in which you could improve the execution on your best advice.
- Do I know how this person’s family history impacts their ideas about money?
- Am I familiar with their past patterns of financial behavior?
- Have I appraised my client’s level of financial literacy?
- Have I given simple advice that can be implemented with a single behavior?
- Do I begin each meeting by asking the client about goal progress?
- Have I asked the client which parts of the advice they might need the most support with?
- Have I brainstormed with the client how to make the goal easier to achieve?
- Have I asked the client to commit, out loud, to the desired course of action?
- Have I understood the needs of this client and provided bespoke advice?
- Is this client ready to change or is change being foisted upon them?
- Are we agreed on the course of action or do we need to discuss further to increase alignment?
- Have I understood and tapped into their goals and purpose as a source of motivation?
Team and advisor characteristics
- Are we treating client compliance with our advice as a shared responsibility?
- Am I delivering advice in a way that is empathic and approachable?
- Am I talking too much (or listening too little)?
- Am I being judgmental?
- Have we identified supportive people in their life who can support this change?
- Are there social sacrifices that will make this change difficult?
- Is there more than one person at the advisor’s office who can be of service?
- Can you provide a list of referrals to outside sources that could support the change?
The number of Americans seeking out formal financial advice has risen from just 25% a few years ago to nearly 40% today, and while that number is still far too low, substantial progress has been made. But in addition to increasing access to and awareness of financial advice more broadly, we must ensure that those already within our care are being well served. A great first step in that process is realizing that not all advice is created equal and that there is much that we can do to support those we are masking to make sometimes-dramatic shifts in the way that they move through the world.
The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a registered investment advisor.