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Ep. 6: Dr. Lamar Pierce: Capitalizing on the Power of Human Interaction
5 Plays9 months ago
While behavioral finance isn’t new, it hasn’t been readily adopted in the wealth management space.
But as technology encroaches on the more transactional aspects of our business, can applying behavioral finance principles to their personal interactions with clients give RIAs a competitive edge?
In this episode, Dr. Lamar Pierce, Professor of Organization and Strategy at Washington University, joins guest host Ryan Neal, Senior Editor at TradePMR, to dive into this question.
Listen as they explore:
- Practical ways that RIAs can leverage behavioral finance to help build enterprise value
- Why advisors should think carefully about which parts of their business will be technology-driven and which will be driven by personal interactions with clients
- How generational differences might impact an advisor’s ability to grow and transition their businesses
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Get the transcript for this episode, with sources, at
https://synergize.advisorevolutionsciences.com/
About Dr. Lamar Pierce
Lamar is a Professor of Organization & Strategy at the Olin Business School at Washington University and a Behavioral Strategy Advisor at Atlas Point.
He holds a PhD in Business from the University of California, Berkeley and an undergraduate degree in economics from the University of Puget Sound.
Lamar Pierce and Washington University are not affiliates of TradePMR.
More About Lamar:
LinkedIn: https://www.linkedin.com/in/lamar-pierce-2988546/
Website: https://olin.wustl.edu/faculty/lamar-pierce2
If you want to join the conversation or connect with us, please visit us at synergize.advisorevolutionsciences.com. This content is provided for general informational purposes only. The views expressed by non-affiliated guest speakers are their own, and do not necessarily reflect the opinion of TradePMR or its affiliates.
TradePMR and its affiliates do not endorse any guest speakers or their companies, and therefore give no assurances as to the quality of their products and services. This channel is not monitored by TradePMR. TradePMR does not provide investment advice, tax advice or legal advice. TradePMR is a Member of FINRA and SIPC. Trade-PMR, Inc. is registered with the Securities and Exchange Commission (SEC) and the Municipal Securities Rulemaking Board (MSRB). TradePMR provides brokerage and account services to registered investment advisors. Custodial services provided by First Clearing. First Clearing is a trade name used by Wells Fargo Clearing Services, LLC, Member SIPC, a registered broker-dealer and non-bank affiliate of Wells Fargo & Company. Copyright 2024 Trade-PMR, Inc.
For a transcript of this episode, with sources, visit
Recommended
Transcript
Introduction to Synergize Podcast
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Speaker
Welcome to Synergize, unscripted conversations where we explore the evolving role of the financial advisor in an emerging AI-driven world.
00:00:11
Speaker
Join us as we bring together thought leaders across a range of disciplines and industry experts, sharing insights designed to help RIAs thrive in the industry of tomorrow.
00:00:22
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And now, here's your host, Bill Capell.
00:00:26
Speaker
Hi, this is Bill Capell, and welcome to Synergize.
Highlights from 2024 Synergy Conference
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The Trade PMR team was in Las Vegas recently to host our 2024 Synergy Conference, Limitless.
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Speaker
It was well attended.
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In addition to representation from the RIA community, industry thought leaders as well as subject matter experts were present to provide insights aimed at helping RIAs capitalize on the growth opportunity that lies ahead.
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While I wasn't able to attend, my colleague, Ryan Neal, senior editor at Trade PMR, caught up with a number of notable conference attendees to capture their thinking.
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There was a lot of activity on the conference floor, so you may hear a bit of background noise.
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That said, you won't want to miss what this guest had to say.
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Speaker
Enjoy the conversation.
00:01:17
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Welcome to the Trade PMR Synergize Podcast.
00:01:20
Speaker
I'm Trade PMR's Senior Editor, Ryan Neal, and I'm filling in today for Chief Client Growth Officer, Bill Capell, who is unable to be here
How Has Technology Changed Client Expectations?
00:01:28
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with us this week.
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My guest today is Lamar Pierce, a Professor of Organization and Strategy at the Olin Business School at Washington University in St.
00:01:36
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Louis.
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I had a chance to meet Lamar at our Synergy24 conference, and he shared some practical ways that REAs can start leveraging behavioral finance into their practice today.
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Here's what he had to say.
00:01:48
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Lamar, as a researcher and behavioral strategist, how have you seen the impact of technology change client sentiments and expectations over the last decade or so, particularly as it pertains to the wealth management space?
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Yeah, so I think one thing that technology has done in this space is it's basically created a firehose of information for people.
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So basically, any client or investor is likely to have an unlimited amount of information that they can look at or see or read.
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And that includes not just pure information, but also advice.
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And so part of the big challenge with technology is it's not about
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how do you get the information or how do you get the advice, but where do you get it from?
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What's your information architecture and how do you decide what you're going to listen to and what you're not going to listen to?
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And so, you know, in the old days, it used to be that, you know, it was hard for a client to go out and understand how to analyze an investment.
00:02:47
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And now the problem is it's not hard for them to find that.
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The question is how do they find it in a way that's actually productive for them?
The Importance of Personalized Services
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And so that's been one thing.
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And I think another thing has been that so much of the products that people use online, the services particularly, are now customized.
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And they're customized in ways where people get, you know, customized advertising to them, customized recommendation engines.
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And so this has really sort of ramped up the expectation among clients that they're going to get a customized experience and not just a standard process.
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And so I think this really...
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creates, you know, not only creates a requirement, but also creates a real opportunity for advisors to basically serve clients with what they really want, which is first of all, you know, this customization.
00:03:39
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But second of all, what they really need, which is somebody that they can trust, that they know and they have a relationship with, to help them deal with this massive amount of information they're getting, much of which is very bad.
00:03:52
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Gotcha.
00:03:52
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So changing client expectations and demands, but an opportunity for advisors if they can rise to that and meet that challenge.
00:04:00
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Yeah, it's totally an opportunity because I think certainly for someone like me who studies strategy, you're always thinking about how can we differentiate?
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You know, and what challenges create if everything was easy to do, it'd be impossible to differentiate.
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But this challenge gives the opportunity that with the right tools, you know, an advisor can basically have an advantage over others in sort of really making people feel comfortable, helping them make good decisions, even when they're faced with lots of external information that might be bad for them.
00:04:30
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Right.
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Really differentiate their practice by being that modern provider they don't get elsewhere.
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Yeah.
00:04:37
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As RAAs deal with today's environment and plan for the future of their business, how should they be evolving
Understanding Client Biases and Attitudes
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their approach?
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So how do we solve this challenge that we just kind of laid out?
00:04:47
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Yeah, so I think one of the real key things is for advisors to understand who their clients are, but also understand that not all their clients are the same.
00:04:56
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So I think one of the mistakes that's happened in the past with behavioral science and trying to apply that to the financial advising world is this idea that humans all have the same biases and so we're just going to try to be aware of those biases.
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And humans do tend to have the same biases, but they have them in very different ways and are at different levels.
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And so I think one of the real focuses needs to be is to understand that everybody's different, that everybody thinks and feels differently about money.
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And that what's really key for advisors to do is to understand precisely who their portfolio of clients is, to understand how each and every one of them thinks and feels about money.
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And even within a given account, how the different members of that family do.
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Because as everybody knows, they don't always agree.
00:05:43
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Yeah.
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Even if they say they agree, they don't necessarily agree.
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And so I think, you know, what we're really focused on and what we're excited about is this opportunity to help advisors have ways to document and understand and have actionable items that really take advantage of these differences in people in ways that are helpful for them.
00:06:04
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Yeah, that makes sense.
00:06:05
Speaker
So when you're talking about how RIAs need to gain insights about their clients that are impactful and significant, can you give some examples of the types of insights that you're talking about
Managing Client Reactions to Market Changes
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here?
00:06:16
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Some of the things you just laid out, do you have any specifics you can give us?
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Yeah, so one of the examples we often use is how people respond to what we think of as crisis or unexpected bad events.
00:06:26
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So suppose that the stock market crashes 4% in one day, which certainly we've seen in recent years.
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What's the response gonna be?
00:06:36
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And some clients, when that happens, they want to immediately take actions.
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And this is often the case where it's like, we need to do something.
00:06:45
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A client might call an advisor and say, do something.
00:06:48
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And of course, the classic failing there is that the asset prices just fell a bunch and then you're going to sell.
00:06:56
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But that's only some clients, right?
00:06:58
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Other clients are going to be the ones who stick their head in the sand.
00:07:03
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And part of the problem with that is that...
00:07:07
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You know, there are some portfolio adjustments you want to make when relative asset prices change.
00:07:12
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They aren't as dramatic as a lot of people think, but there are some changes you want to make.
00:07:16
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And some people just don't want to deal with the fact that, you know, that now their portfolio looks different.
00:07:21
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And so they kind of stick their head in the sand.
00:07:24
Speaker
And these are really not...
00:07:28
Speaker
there's not sort of one better one worse approach to this i think we all have our own feelings we all have our own blind spots it's really about understanding who are the type of people that we need to worry about with this and so i think you know one thing that we're really focused on was this idea of how do you help advisors understand who are the people they need to worry about when something like this happens because you know the stock market crashes four percent
00:07:56
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They only have a certain amount of time and they need to figure out who should I worry about?
The Role of Trust in Financial Advising
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Who are the clients that I think are going to be most upset?
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Who's going to potentially blame me?
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Who's going to not answer my phone calls to adjust a portfolio?
00:08:14
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And I imagine that's a big part of this, right?
00:08:16
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Is not just getting that information about which of the clients you have to worry about, which are likely to react a certain way.
00:08:23
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But then amongst that cohort, how do you talk to those individuals in the way that's going to impact them?
00:08:30
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Because you can have four people that are worried about that downturn.
00:08:33
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But then those four people might need to be communicated about that downturn in very different ways on their biases or their portfolios or whatever it may be.
00:08:42
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So customizing that message after the fact.
00:08:44
Speaker
Yeah, that's exactly right.
00:08:45
Speaker
And I think what's important to note here, and you really hit it on the head there, is this idea of, you know, it's not just about the knowledge you have, but the actionable items.
00:08:54
Speaker
and the tools and the guides on how to have those conversations.
00:08:58
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Because ultimately, particularly the more that technology progresses, the more that technology is sort of making advice on portfolio allocations, this is a business about relationships.
00:09:11
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And it's not just a business about relationships in terms of what you're doing with a given account, it's about relationships that help you retain accounts, that help you build them,
00:09:21
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And that's really what this is about, is about how do you build trust, how do you retain that trust, and how do you communicate into a way that not only they will understand, but that they'll truly believe.
00:09:30
Speaker
Yeah.
00:09:31
Speaker
Is there anything kind of broader strokes, more that advisors can do to take these insights and enact them out there to better work with clients and get to this next stage of advice that we've been talking about?
Building Relationships with Entire Client Households
00:09:45
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Yeah, so I think one thing is how we think about approaching households.
00:09:49
Speaker
Oh, okay, yeah.
00:09:51
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And I think traditionally, a lot of couples and sort of broader households have had interactions between one member of the household and the advisor.
00:10:03
Speaker
And that works perfectly.
00:10:06
Speaker
fine in most cases, but in the end, there's always this risk that if there's some loss of life or perhaps a separation, that whoever in that household is still around and manners the money is not going to have any relationship with the advisor.
00:10:26
Speaker
And so I think a key thing of this is understanding who those less vocal members of the household are, because you want to make sure that
00:10:35
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you have a relationship with them too if they're the ones who then start controlling the assets.
00:10:41
Speaker
And there's just this tremendous risk after an event like a divorce or someone passing away that that business walks out the door.
00:10:51
Speaker
And you want to make sure that you aren't putting all your eggs in the basket of one member of the family.
00:10:57
Speaker
Yeah, that makes a lot of sense.
00:10:58
Speaker
I know that's something that Rob Baldwin spoke about earlier.
00:11:02
Speaker
And now I guess maybe on that same note, not putting all eggs in one basket for one person in the family, but also not on your advisory team, right?
00:11:10
Speaker
Spreading that relationship, getting other people in your team to also build those relationships with multiple people in the family.
00:11:15
Speaker
And we're so that if something happens to the advisor, the clients don't leave.
00:11:19
Speaker
Probably same idea, right?
00:11:21
Speaker
Yeah, no, I think that's right.
00:11:22
Speaker
And I think also having a way, because oftentimes advisors know their clients well, or often very, very well, but not in ways that are easily codified or written down or documented such that, you know, if,
00:11:39
Speaker
something happens to them or they're not able to communicate that or share that in a way that others would be able to understand other members of their firm.
00:11:48
Speaker
And so having a way in which we can characterize and lay out exactly what communications work, how people think and feel about money is a great way to make sure that an entire organization knows how to have a relationship with those people and not just the one person who's interacted with them.
00:12:09
Speaker
Well, Lamar, thanks again for joining me.
00:12:10
Speaker
And as we wrap up our conversation, what are three things that you think leaders of firms out there or advisors can start working on today to put a greater value on human interaction in the delivery of financial advice and
Preparing for Wealth Transfer to Younger Generations
00:12:25
Speaker
guidance?
00:12:25
Speaker
Yeah, so I think one of the key focuses that everyone needs to have are these generational differences.
00:12:32
Speaker
And I think they need to start thinking about what does it mean in the long term to retain this book of business?
00:12:40
Speaker
Because that book of business might be with...
00:12:43
Speaker
the current controller of the funds.
00:12:46
Speaker
But, you know, a lot of that money, a lot of the wealth in the United States is in people who are in their 70s and 80s.
00:12:53
Speaker
And that money is going to get passed down.
00:12:55
Speaker
It might get passed down to a widow or widower.
00:12:57
Speaker
It might get passed down to their children.
00:13:00
Speaker
And those people are very likely to think and feel about money in a different way than the long term sort of client has been.
00:13:07
Speaker
And so, obviously there's the issue about sort of within partners, between spouses.
00:13:15
Speaker
But I think the other thing too is a lot of this wealth is gonna get passed on to a next generation and they're from a very, very different background.
00:13:23
Speaker
Right.
00:13:23
Speaker
They grew up in very different financial circumstances, different times.
00:13:27
Speaker
They've oftentimes had their first investments in an era of crypto or meme stocks.
00:13:34
Speaker
And so they've also not really experienced recessions.
00:13:38
Speaker
I mean, other than just the blip that was the pandemic.
00:13:42
Speaker
Right.
00:13:43
Speaker
They've seen these long sustained periods of growth.
00:13:46
Speaker
And so for many of them, they might have a very different attitude toward the possibility of a downturn.
00:13:52
Speaker
And so it might come as a complete shock.
00:13:54
Speaker
So I think a lot about it is thinking about, you know, as my clientele ages, how do I think about what I'm going to do as that money gets passed on to a next generation?
00:14:04
Speaker
I think a second...
00:14:06
Speaker
I think that's really important to consider is this idea of succession planning.
00:14:14
Speaker
Okay.
00:14:15
Speaker
Because certainly, you know, the advisors themselves are as a population aging and a lot of them are looking, you know, for ways to pass down their business along to successors.
00:14:27
Speaker
And that's oftentimes a very difficult transition.
00:14:31
Speaker
But certainly I think in terms of smoothing out that transition, but also in terms of increasing the value of their book of business, this plays a really important role.
00:14:42
Speaker
And what it does is it basically helps somebody who might be taking over that book of business really understand how valuable it is.
00:14:50
Speaker
Because if I'm acquiring a book of business, what I want to understand is not just the assets under management,
00:14:56
Speaker
It's not just what the statistical profile of these people are.
00:15:01
Speaker
What I want to understand is if I take over this business, what is the likelihood that they're going to leave?
00:15:08
Speaker
what is the likelihood I'm gonna lose them during this transition?
00:15:12
Speaker
And I have to figure that out really fast because that's the biggest risk time is when you go through that succession planning, people are like, oh, I think I wanna go find somebody new.
00:15:21
Speaker
And so part of what this does is it gives the advisor who is basically passing this along, who already has this, it gives them an ability to lay out for a potential successor.
00:15:34
Speaker
Here's who my clients are.
00:15:35
Speaker
I have them well-documented.
00:15:37
Speaker
And here's how, if you become my successor, here's how you will be able to retain these people, talk to these.
00:15:44
Speaker
And it would, if I were a successor, it would give you much more confidence in my ability to succeed on that.
00:15:52
Speaker
And, you know, subsequently also, I think a much stronger willingness to pay for the opportunity to take over that book of business.
Balancing Technology and Personal Interaction in Advising
00:15:59
Speaker
Yeah.
00:15:59
Speaker
Yeah, so I think the third piece of advice is really trying to decide and understand which parts of their business are going to be technology driven and which parts are going to be personally driven.
00:16:09
Speaker
Oh, okay.
00:16:10
Speaker
Because, you know, I think certainly a lot of us view technology as a tool that works best when it's integrated with actual human advising and human expertise.
00:16:22
Speaker
And I think there's this false belief out there in some circles that technology can necessarily replace humans.
00:16:29
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And there are just these really important relationship sides that technology can't.
00:16:34
Speaker
And so I think for an advisor, I think what they need to think carefully about is what are the key interpersonal relationship things?
00:16:44
Speaker
What are the things that strengthen those relationships between me and my clients that are going to make them want to stay with me, to trust me?
00:16:52
Speaker
And make sure that those remain
00:16:56
Speaker
personal and interpersonal between them and their client.
00:17:00
Speaker
Technology is a tool.
00:17:01
Speaker
It's not a replacement for who they are as a person.
00:17:04
Speaker
And we know this because humans tend to have something that we call algorithm aversion, which is they tend to naturally be afraid of things that are generated by algorithms, even if the data might show that it's actually a really good thing.
00:17:20
Speaker
And so understanding that and remembering that these people
00:17:24
Speaker
Ultimately, in the end, they want somebody they can trust.
00:17:26
Speaker
They want somebody they can call and somebody they like.
00:17:29
Speaker
And those things can't be replaced by technology.
00:17:32
Speaker
Interesting.
00:17:33
Speaker
That algorithm aversion, is that something akin to the artistic concept of uncanny valley that you see something that you know is fake, but it looks sort of realistic, so you feel averse to it?
00:17:46
Speaker
Maybe.
00:17:46
Speaker
Maybe.
00:17:47
Speaker
All right.
00:17:47
Speaker
Just kind of curious.
00:17:49
Speaker
Well, great.
00:17:50
Speaker
So to recap, here's what advisors and firm leaders in the RIA space today may want to think about as they position themselves for the growth opportunities that lie ahead.
00:17:59
Speaker
First, we talked about generational changes.
00:18:02
Speaker
And then second, succession planning and
00:18:05
Speaker
and understanding the differences in those for when we're going forward, having advisors think about those generational changes along with their succession planning, understanding who everyone is in that thought process.
00:18:17
Speaker
And third, when advisors are thinking about the technology they're bringing into their practice, which parts of it are interpersonal, which parts can tech do, and making sure we're not looking at tech to replace the human advisor, but to help them build deeper, more connected relationships.
00:18:34
Speaker
Yep.
00:18:35
Speaker
That's a good summary.
00:18:37
Speaker
Once again, thank you to everyone who took time to join us here from the Synergy 24 conference.
00:18:43
Speaker
If you enjoyed this special edition of Synergize, hit subscribe wherever you get your podcasts and be on the lookout for the next episode with actionable insights for how you can grow your business.
00:18:55
Speaker
And remember, the challenge is yours to capitalize on what the future offers.
00:19:05
Speaker
If you want to join the conversation or connect with us, please visit us at synergize.advisorevolutionsciences.com.
00:19:13
Speaker
This content is provided for general information purposes only.
00:19:17
Speaker
The views expressed by non-affiliated guest speakers are their own and do not necessarily reflect the opinion of Trade, PMR, or its affiliates.
00:19:25
Speaker
Trade PMR and its affiliates do not endorse any guest speakers or their companies and therefore give no assurances as to the quality of their products and services.
00:19:35
Speaker
This channel is not monitored by Trade PMR.
00:19:37
Speaker
Trade PMR does not provide investment advice, tax advice, or legal advice.
00:19:42
Speaker
Trade PMR is a member of FINRA and SIPC.
00:19:45
Speaker
Trade PMR Incorporated is registered with the Securities and Exchange Commission and the Municipal Securities Rulemaking Board.
00:19:54
Speaker
Trade PMR provides brokerage and account services to registered investment advisors, custodial services provided by First Clearing.
00:20:01
Speaker
First Clearing is a trade name used by Wells Fargo Clearing Services, LLC, member SIPC, a registered broker-dealer and non-bank affiliate of Wells Fargo & Company.
00:20:11
Speaker
Copyright 2024.
00:20:13
Speaker
Trade PMR Incorporated.
00:20:15
Speaker
For a transcript of this episode with sources, visit synergize.advisorrevolutionsciences.com.