Selling financial products and services can be challenging. The process of turning a newly identified lead into a loyal client involves multiple factors. Everything from your initial marketing touches to the way you come across during personal interactions can, and will, influence the consumer’s final decision. One of the biggest factors at play here is also among the most challenging to work through – behavioral finance bias.
A concept rooted within the sub-field of behavioral economics, behavioral finance bias involves the psychological, social, and personal reasons a consumer might struggle to make rational financial decisions. More broadly speaking, these biases are the answer to questions like:
- Why do your clients balk at logical solutions?
- What causes them to reject options that will help them achieve their goals?
- Why are you getting panicked phone calls from a client who suddenly changed their mind about a sturdy financial plan?
The cognitive and emotional nature of these biases can present a tough obstacle to overcome, despite the financial impact. However, a little insight can be a valuable tool when trying to convince a biased consumer to make a rational financial decision. Let’s break down a few of the more common biases.
This describes the tendency to avoid loss, rather than go after gains. For example, the emotional effect of losing $100 is heavier than the financial gain of finding $100 on the sidewalk. This can impact the ability to fully recognize the value of products with growth components or even lead to a flat-out rejection of any financial solution whatsoever.
You don’t have to look very hard to see examples of confirmation bias. For instance, many consumers will ignore information that contradicts their own beliefs. Or they might spin that information in a way that supports a predetermined conclusion. Because it can create a sense of overconfidence, confirmation bias can have dramatic consequences on one’s financial decision-making. A client or prospect with heavy confirmation bias will often resist advice or options, even if backed by research or relevant information.
Snake Bite Effect
Once bitten, twice shy. It’s only natural for people who have a negative experience with financial solutions to be cautious when presented with a product or plan. The issue here is that the conditions could be completely different, or the consumer could be conflating products that are not comparable.
Some people tend to hold on to properties they already own, placing more value than they are actually worth. For instance, a prospect may have a large sum of money in a low-growth savings account. Because they have accumulated that sum over the years, they may be averse to using these funds to purchase specific retirement vehicles that match their goals.
Most, if not all, advisors will encounter these and other behavioral finance biases at some point in their career. In fact, it wouldn’t be a stretch to say that nearly every consumer carries some sort of bias affecting their decisions. The problem arises when that bias creates misconceptions about the value of money and financial planning. Overcoming a behavioral bias can be a little more challenging than a “typical” consumer objection. Even more so when that bias is rooted in emotions and/or personal experiences. The trick is to first identify the bias as soon as possible. Use probing skills to determine why that specific person holds that specific bias. From there, use your expertise to educate, inform, and change their perspective.
Breaking Through the Bias
When it comes to breaking through bias, The Beatles might have said it best; “All you need is love.” Throughout February, IAMS is showing the love with our complimentary Insure Your Love marketing kit.
The kit includes:
- Customizable Life Fact Finder
- Life Insurance Overview Packet
- Social cards for Facebook, LinkedIn & Instagram
Click below to request your Insure Your Love marketing kit today.