When you hire a professional, do you look for competence or empathy?
When it comes to hiring a financial professional, which of these traits is more important to you – competence or empathy? If you’re like me, it’s a no-brainer. I choose competence every time. But that’s not how the investment profession sees it. For them, it’s all about selling. And the most successful sales people are those who project warmth, friendliness, and charm when talking with clients and prospects. In other words, they are accomplished in the art of projecting empathy, whether genuine or manufactured.
It’s hard to judge competence, but it’s easy to know warmth. A professional who conveys warmth, (charm, personality, friendliness, etc.) inspires trust and confidence, regardless of competence. Competence may be a valuable trait, but it comes in a distant second to warmth.
In the world of investment advice this is neither a surprise nor a problem. All businesses run on sales, and sales professionals who have weak sales skills will quickly be removed from the gene pool and replaced by others who have better skills. Darwinism at work. So, what’s the problem?
The problem is that this natural selection process creates a population of financial advisors who aren’t very competent but can sell just about anything to anyone – whether they need it or not. That might be o.k. if we’re talking about spending a few hundred bucks on a gadget that we’ll use once and never take it out of the box again, but if we’re talking about managing our entire life savings over a period of 20 years or more, it’s a problem.
I learned this first hand
I’ve worked with hundreds of advisors over the years. If there’s one personality trait that predicts success in the advice business, it’s warmth. Without it, a new advisor doesn’t stand a chance, even if she is highly competent. In fact, making a presentation to a prospective client that demonstrates a high degree of competence can actually be a negative, especially if the presenter lacks warmth.
Warmth conveys a feeling the advisor will act in the best interest of the client. Yet, in their efforts to be perceived as competent, advisors can come across as cold and impersonal, leaving a negative impression and reducing the possibility of a successful outcome.
This is what they teach new recruits in the advice business
Convey good intentions
Ask open-ended questions intended to get the prospect talking, with the goal of getting them to reveal what their hot buttons are.
Tell a story that shows how you always put your client’s interest first. If you don’t have a real story, just make one up. The prospect won’t be able to tell the difference. Stories that highlight your good intentions should take precedence over stories that demonstrate your competence.
When the prospect says, “Tell me about yourself,” he is not asking for further proof of your competence – he is giving you an opportunity to convey warmth. He wants to learn about good intentions. He wants to feel comfortable with you. He wants to feel good about working with you. If you happen to also be highly competent, that’s a bonus. But it’s not a requirement for success as an advisor.
Show humility, even if you have to fake it
It’s hard for most of us to relate to perfect people because we are flawed ourselves. Recounting a past mistake or a humbling experience increases the perception of warmth while not materially affecting your image as competent. This is one of the oldest tricks in the book of financial sales.
The takeaway
Most financial service professionals underestimate the importance of competence. They have been trained in the art of salesmanship and their compensation depends on how competent they are at gathering assets. They present an air of success and competence, but eventually they must either deliver good results or lose the assets. However, it takes a significant amount of incompetence to motivate a client to fire their trusted, friendly, empathetic advisor.
And this is why the financial advice business is so profitable. As long as an advisor can keep his/her clients comfortable and reassured, there is little motivation to end the relationship. Under-performed the market by 5% last year? That’s just short-term noise. You are a long-term investor, right?
No amount of competence can compete with a highly skilled schmoozer. True story: I once called an old friend from high school and pitched him on my investment approach. After several conversations it became clear to me that his current advisor was not very competent, but he wasn’t willing to give me his account because, and I quote, “He’s a great guy.” That should tell you all you need to know about the tension between competence and empathy.