Behavioral Finance and
Defining Your Fiduciary Brand

 

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Until recently, economists started with the premise that people made rational decisions, ones that put their self-interest first. Now, the discipline of behavioral finance, which combines insights from psychology and economic decision-making, has revealed that human judgments are not always based on reason.

For example, investors today face unprecedented complexity in their decision-making. The trust-shattering market, current economic stagnation and a steady stream of new financial products create confusion and delay. These challenges make your knowledge and services more valuable than ever. And yet, behavioral finance tells us that the more vast the array of choices (in this case, the consumer’s choice of a financial advisor), the more likely consumers are to delay or ignore a decision. Behavioral finance experts call this the paradox of choice.

Several hundred thousand individuals offer financial advice in the U.S. – as planners, registered reps, accountants, attorneys and insurance representatives. If prospects are overwhelmed by the number of choices, then it is up to you to simplify decision-making for them. Reduce the number of options they perceive. One way to do that is to create a sense of trust from the beginning, supported by your message of fiduciary responsibility and to establish your brand around it.*

Define your brand with fiduciary responsibility

The Dodd–Frank Wall Street Reform and Consumer Protection Act – all 2,300 pages of it – became law on July 21. Next steps include more documents generated as regulators interpret and create regulations and a required study that could potentially lead towards a universal fiduciary standard will take place at the U.S. Securities and Exchange Commission (SEC).

In the meantime, investors may not understand the differences in fiduciary definitions, but they are looking for an advisor they can trust. You can build trust with prospects and clients, helping them understand your commitment to fiduciary responsibility.

One strategy is to incorporate fiduciary concepts into all parts of your personal and business brand. In this paper, we explore the ideas behind “branding” and suggest simple, practical ways that you can use these ideas to integrate your fiduciary standards into the client experience with you. Ultimately, the consistent message that is embedded in your brand will strengthen and build your business relationships.

“Clients are looking for advisors whom they trust enough – a trust grounded in the rapport established – to make difficult decisions for them,” Barbara Kahn, marketing professor in Bridging the Trust Divide The Financial Advisor-Client Relationship,
page 5.*****

Easy to neglect

As a successful financial advisor, you are most likely an outstanding multi-tasker. Talking and meeting with clients and prospects, managing investment strategies, and staying on top of compliance demands and issues – any of these could be a full-time job.

With so many demands that cannot be put off, it is easy to understand why marketing initiatives end up on the back burner. And even for advisors who are committed to a marketing program, a branding strategy may be the last on the “to do” list.

Why is the idea of branding so neglected? For one thing, the exact meaning of the word is not easy to pin down; it has evolved over time and now is a top-level marketing function at Fortune 500 companies. Second, while we are all programmed to recognize Campbell soup as a brand, it is a stretch to associate branding with an intangible financial services product. Or it may seem just too complex for a small business to address. Even if you do understand it, how can it help grow the business?

What does “branding” mean exactly?

Search for a definition of branding, and you will find many options, most of which refer back to the long-standing concept of choosing between Coke and Pepsi, products on the grocery shelf.

Addressing the broader view of branding, Professor Philip Kotler of Northwestern offers this timely description. He could be speaking directly to financial advisors:

Branding is much more than attaching a name to an offering. Branding is about making a certain promise to customers about delivering a fulfilling experience and a level of performance. Therefore, branding requires that everyone [in the organization] works to carry out that promise. This is what is meant by “living the brand.” The brand becomes the whole platform for planning, designing, and delivering superior value to the company’s target customers.**

What makes a great brand?

Even though consumers can’t actually touch their products, financial services companies have created outstanding brands, for example: the Prudential rock, Allstate’s “good hands” and Merrill Lynch’s bull. Each of these is represented by a strong, memorable visual identity. Effective branding happens when the picture or logo triggers a set of associations and emotions that consumers identify with the company. “Good hands” convey a feeling of benevolence and safety, just what you want from your insurance company.

Warren Buffett may be one of the world’s most successful investors. He is also a brand. Since he appears regularly on TV and other media, his smiling, grandfather face is part of the brand. But for most people who follow his achievements, his decision-making process (including his measure: “it has to be a business I can understand”) is an important part of why Warren is Warren.

Know your own brand

Whether you know it or not, you have a brand. “One way to think about your brand is this: your brand is your reputation. One of your most important assets is your reputation. ... You must treat your reputation like a brand by investing in it, protecting it, cultivating it, and leveraging it.”***

While marketing consultants can generate revenue for themselves by helping companies build and manage their brands, you do not need to go through an exhaustive branding analysis. You can benefit from taking a look at the ideas behind a successful brand strategy.

What do people recognize in you as a brand? Here is a simple exercise to help identify parts of your brand and how they might affect prospects and clients.

Think about one or two typical clients and the many ways that they come in contact with you and your firm. To get you started, consider these:

This process gives you a chance to step back and imagine what prospects and clients experience when they are connecting with you. Ask yourself how they will see you:

· Wealthy and successful, since I drive a Mercedes and work in a sleek, expensive office?

· Prudent and careful, as my clothes are conservative, and my office is in a modest yet safe office area?

· Considerate, providing easy parking and access to your place of business?

Once you have taken an objective look at how clients see you, put yourself in the client’s shoes, make some steps toward incorporating your fiduciary obligation into your “brand.”

Three ways to set yourself apart, make fiduciary responsibility key to your brand

Even though there is no universal standard at this time, you can set your own. Write it down. Make sure your prospects, clients and your support staff see it. Incorporate it into your presentations, your newsletters and your overall brand.

Here are three ways to convey your message.

Transparency. Answer the questions that your audience may not know enough to ask. Are you regulated by the SEC or the Financial Industry Regulatory Authority (FINRA), or both? What does that mean for them? What is your personal interpretation of fiduciary, and what are the practical results of that interpretation?

Clients may not understand your fee system. Make sure they are clear on how you are compensated. Once that issue has been addressed, link your fee process with your investment strategy – not just how you invest, but why you believe in the system that you have selected.

Consistency. Don’t be like Roberto Heckscher, another Ponzi perpetrator who was nabbed in June for swindling clients of more than $50 million. He is reported to have worked from a modest San Francisco office during the week; on the weekends he transformed himself into a Las Vegas high roller.****

As a brand, you want to deliver a consistent message. Your workplace, the clothes you select, the organizations you join, the styles of your co-workers, the way the phone is answered – the list is endless. But each small piece of your brand, when part of the larger picture, creates a powerful incentive for clients to trust you.

Talk about it. Show how you record conversations for compliance purposes. One advisor walks clients through the office to show where their documents are stored. Describe your technology and how privacy is assured.

Consider an FAQ section on your web site and brochures. That way, the information is readily available, yet readers can make the decision for themselves as to just how much effort they want to put in to understand how their private, personal information is managed in your office. Even if they don’t read all the information, they will get the message that they can read it anytime, that it is readily accessible ... transparency!

A final thought

In this white paper, we explored the ideas behind modern branding and how you can ensure your dedication to a practice that lives and breathes the fiduciary approach is clear to your audience.

As more advisors go independent, or want to maintain autonomy within the firm’s brand, it is more important than ever to make sure the target audience comprehends and appreciates the values behind fiduciary responsibility.

Make sure the value of fiduciary responsibility is always visible to your clients, a prominent part of your brand.

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RESOURCES

Bradlow, Eric. T., Keith E. Niedermeier, and Patti Williams. Marketing for Financial Advisors. New York: McGraw Hill, 2009.

Knowledge@Wharton and State Street Global Advisors. Bridging the Trust Divide: The Financial Advisor-Client Relationship. Special Report, 2008.

Ross, Maria. Branding Basics for Small Business. Nashville, Indiana: NorlightsPress, 2010.

Thaler, Richard H. and Cass R. Sunstein. Nudge: Improving Decisions About Health, Wealth and Happiness. New Haven & London: Yale University Press, 2008.

Tybout, Alice M., and Tim Calkins editors. Kellogg on Branding. Hoboken, New Jersey: John Wiley & Sons, Inc., 2005.

* Bradlow (2009), 132-136.

** Tybout (2005), ix.

*** Bradlow (2009), 81.

**** www.investmentnews.com/article/20100614/FREE/100619961

***** Bridging the Trust Divide The Financial Advisor-Client Relationship, page 5

 

This article is provided for informational and educational purposes only. It is not intended as and should not be used to provide investment advice and is not an offer to sell a security or a solicitation of an offer, or a recommendation, to buy a security. All investments carry a certain risk and there is no assurance that an investment will provide positive performance over any period of time. Investment decisions should always be made based on the investor's specific financial needs and objectives, goals, time horizon, and risk tolerance. The statements contained herein are based solely upon the opinions of Envestnet. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice. Neither Envestnet nor its representatives render tax, accounting or legal advice. Past performance is not a guarantee of future results.

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