Exposing the Flaws

Even if I go into a store with the intention of buying something, I get uncomfortable when somebody asks me if I need help. I’m not sure what causes this reaction but I think I’m like most people in the sense that I dislike being sold. I wanted to share an interesting story about selling from Adam Grant’s “Originals.”

After having their first child, Rufus Griscom and Alisa Volman were appalled by the amount of false advertising and bad advice being offered about parenting. They started an online magazine and network called Babble to challenge the dominant parenting cliches and tackle the cold, hard truth with humor. In 2009, when Griscom pitched Babble to venture capitalists, he did the exact opposite of what every entrepreneur has been taught to do: he presented a slide listing the top five reasons not to invest in his business….But his counterintuitive approach worked: that year, Babble brought in $3.3 million in funding…When you’re pitching a novel idea or speaking up with suggestions for change, your audience is likely to be skeptical. Investors are looking to poke holes in your arguments; managers are hunting for reasons why your suggestion won’t work. Under those circumstances, for at least four reasons, it’s actually more effective to adopt Griscom’s form of powerless communication by accentuating the flaws in your idea.

The first advantage is that leading with weaknesses disarms the audience. Marketing professors Marian Friestad and Peter Wright find that when we’re aware that someone is trying to persuade us, we naturally raise our mental shields. Rampant confidence is a red flag- a signal that we need to defend ourselves against weapons of influence. In the early days of babble, when Griscom presented at the first two board meetings, he talked about everything that was going right with the business, hoping to excite the board about the company’s momentum and potential. “Every time I would say something emphasizing the upside, I would get skeptical responses,” he recalls. “Unbridled optimism comes across as salesmanship; it seems dishonest somehow, and as a consequence it’s met with skepticism.” Everyone is allergic to the feeling, or suspicious of being sold.

The methods at Babble made me think of the selling we do as financial advisors. While it might not be the best idea to lead with the flaws in your investment philosophy, it is absolutely critical to fully expose them at some point prior to the client coming on board. Imagine hearing from the two advisors below:

Advisor A)

“The way we invest is fairly boring. It’s likely that you’ll always know somebody who has done better than you over the last twelve months. In fact, that won’t ever go away, there will always be something to distract you from the plan that we’ve created. And oh by the way, returns are not guaranteed. There can and will be years where the value of your portfolio goes down.”

Advisor B)

“The portfolio we’ve created for you lies directly on the efficient frontier. We begin with the minimum variance portfolio and add less than perfectly correlated assets until we arrive at a portfolio that has the highest expected return for the risk we’re assuming. Now once we arrive at this point, we’ll closely monitor macro-economic conditions, i.e. currencies, interest rates, inflation differentials and so on, to make sure that our assumptions for the next six months still hold.” 

Which of these advisors are more likely to have sustainable clients? I’m obviously biased, but I think most people would feel more comfortable working with advisor A who spoke to them rather than advisor B who spoke over them.

One of the most important things to think about when finding the right investment strategy is to really understand the flaws. I would rather over explain and dissuade somebody from working with us than under explain and find out six months later that they weren’t a great fit. If a client fully understands that there will be bad times, maybe that will increase the likelihood that they’ll stick around for the good ones.

Source:

Originals

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  1. Max Corder commented on Feb 01

    Thank you. This is timely and appropriate advice as I prepare to meet with clients who came on board last April. Even with the most widely diversified asset classes and the least expensive ETF’s, the account is at a loss, but is close to the benchmark. Time to break out the IPS and see if the clients really meant it when they like stocks a year ago.