How can financial professionals truly influence the way prospects and clients make buying decisions? The answer is to talk with them about how they make decisions. This is known as behavioral economics, which is the fusion of psychology and economics to explain human behavior as it relates to financial decision-making. In other words, it’s how consumers think about and make decisions about financial matters.
In order to influence consumer behavior, financial professionals must talk with prospects and clients in terms of how they really make decisions. To unearth what’s actually going on below the surface, financial professionals need important soft skills such as rapport building, adaptability and complex problem-solving. If you want to know what’s really preventing the prospect from making a decision, you must adopt an approach that establishes the kind of trust required to engage in courageous conversations.
Research identifies a number of specific behavioral economics principles that help explain the buyer’s thought process when deciding to purchase financial products. The sales effectiveness program Trustworthy Selling, developed through a partnership with LIMRA and the Hoopis Performance Network, provides simple techniques to overcome these hurdles. Let’s look at three examples.
People tend to make decisions that align with what others have done. This behavior is based on the social pressure of conformity, as well as the rationale that a group of people is less likely to be wrong than an individual person is. Most people are very sociable and have a natural desire to be accepted by a group. In addition, people assume that members of the group must know something they do not. This is especially evident in situations where an individual has very little experience — as with many financial decisions.
People generally feel optimistic about the future — they don’t think losing a spouse will happen to them or that a health problem will erode their life savings. On a daily basis, this optimism bias is good, because it helps us get out of bed each day without the paralyzing fear that something catastrophic could happen. It becomes a problem, however, when people think that bad things will never happen to them. This can cause them to avoid doing things that are ultimately in their best interest, such saving for the future or purchasing disability or life insurance.
People also have a hard time making complex decisions and tend to prefer things to stay the same. When faced with ambiguity, fear takes over and people don’t act. As humans, we’re more comfortable with inertia — not doing anything — than we are with making difficult decisions.
Ambiguity breeds mistrust. Prospects worry about what’s going to happen to them. Most people would rather not find out.
Knowing about behavioral economics principles is interesting, but how can they be applied?
Financial professionals who fundamentally understand these natural human tendencies, and adapt their approach with techniques that help overcome these hurdles, will create a much better experience for their prospects and clients and achieve greater results. LIMRA research found prospects who viewed sales presentations incorporating behavioral economics techniques were more likely to recall the sales representatives’ messages and were more emotionally engaged in their decisions. These prospects viewed the presentation more positively, and they were more relaxed, enthusiastic and helpful. Moreover, they indicated they would be more likely to buy.
In fact, presentations that incorporated the behavioral economics techniques resulted in a 29% increase in consumers’ intention to buy. In this era of client centricity, aligning our presentations closely to the thought patterns of prospects and clients will provide an experience tailored to their specific needs.
By understanding behavioral economics and the right soft skills, financial professionals can positively influence their prospects’ and clients’ financial well-being. They can help their prospects overcome hidden obstacles and lead them to action by guiding them through the daunting financial decision-making process.