Many years ago, when I first started selling life insurance, I often found myself with hours of unassigned time on late weekday afternoons. I frequently spent the time in the public library reading. (I was a little lazy in the beginning of my career.) It did not take long before my new bride, herself a hardworking first grade teacher with as many as 30 kids in her class, began innocently asking, “How was your day?”
Soon, just anticipating her question caused me to step up my game and make better, more productive use of my time. There was power in her ability to influence my behavior. Since those early days, my wife has helped me grow in innumerable ways and is responsible for my maturing in every direction possible. (She’s nowhere near done, however!)
“Anyone who thinks that they are too small to make a difference has never tried to fall asleep with a mosquito in the room.”—Christine Todd Whitman
Point: We can have an effect on other people in ways that exceed our comprehension.
In his comprehensive overview of moral philosophy, The Theory of Moral Sentiments (1759), Adam Smith introduced the concept of the “impartial spectator”—an imagined third party who allows an individual to objectively judge the ethical status of his or her actions. Smith believed that we judge ourselves only by imagining what an impartial spectator would approve or disapprove of in our conduct. Underlying this idea is the fact that we have a natural desire to be loved and we dread receiving blame.
Whenever I endeavor to examine my own conduct…I divide myself as it were into two persons: and that I, the examiner and judge, represent a different character from that other I, the person whose conduct is examined into and judged of. The first is the spectator…The second is the agent… (TMS III. 1.6)
Once we grasp the idea of an indwelling impartial spectator, believing that we are capable of judging ourselves, we construct a new delineation between being praised and being praiseworthy, being blamed and being blameworthy.
There are many limitations of this notion, but primary among these is the fact that such a system, if it existed, can only be applied retrospectively. It is unwieldy and not useful for making prospective decisions.
Point: As human beings, we have a conscience, we are aware of social mores and norms, and we have a sense of what is best, or just good, as well as what is unconscionable, or just out of bounds. Nevertheless, we need others to keep us accountable.
Time to Realize the Power
An independent financial professional (IFP) has an impact on a person or family or business whether or not he or she writes any insurance, invests any funds, or earns any fees. In fact, an IFP can have incredible impact on client behavior without actually meeting regularly or in person.
According to Investopedia, “Advisors’ real value lies in managing client behavior. Their mission is to keep their clients focused on their goals, even as their short-term objectives may change.”1
On the Web Site for Michael Kitces, guest post writer Derek Tharp wrote the following: “The unique power of the human-to-human connection means clients can achieve better behavior, change outcomes, with a financial advisor than they may be able to achieve by themselves or through the use of technological tools. Because when a human is involved, we often have few options for totally avoiding the unfavorable perceptions we think others may have about us if we don’t follow through on our goals…which can be highly motivating. In the case of technology, while it may provide useful behavior change reminders…we can always just turn off the technology and feel very little guilt. But it’s far harder to just ‘turn off’ an existing relationship with another person.”2
This is noteworthy. The iPhone in the client’s hand is capable of doing innumerable things to help clients to better organize, maximize, multiply, and research nearly everything. Yet, an IFP has even more power!
“How wonderful it is that nobody need wait a single moment before starting to improve the world.”—Anne Frank
At the outset of the COVID-19 Pandemic, Harvard Business Review published an article addressing the changes that remote work would likely have on productivity. The article stressed the importance of human-to-human contact.
“Social psychologists have known for decades that people are motivated to work harder when others are watching. When they are observed, people run faster, are more creative, and think harder about problems. These effects occur for several reasons. For one, people want to impress others through their performance, and thus try harder. Anyone who has ever stayed in the office late when their boss was still around experienced this phenomenon.”3
When a client engages the services of an IFP, it is with the intention of upgrading every aspect of a financial life. Intuitively, clients know that a certain degree of accountability is necessary in order to achieve desired outcomes. They expect this accountability to come from personal interactions.
If the presence of an IFP has a fundamental effect on clients and what they do or how they behave, it also impacts how they think about their actions. Somehow, what a client does or doesn’t do magnifies in importance just because an IFP is liable to ask questions in their next meeting.
“When others are watching, people include others’ perspective into their own perspective. The dual perspective then magnifies their work, because investing time, energy, and effort into something that feels big and meaningful is much more motivating than investing in something that feels small. The magnification of one’s work increases one’s motivation to work more and harder.
People magnify what they do not only when they are observed, but even when they merely feel observed.”4 (Author’s emphasis)
A Brief Physics Lesson
We should not be surprised by any of this because this is how the world works.
In physics, there is something called “The Observer Effect.” A disturbance takes place when someone observes a closed system simply by the act of observation.
“This is often the result of utilizing instruments that, by necessity, alter the state of what they measure in some manner. A common example is checking the pressure in an automobile tire, which causes some of the air to escape, thereby changing the pressure to observe it.”5
“The Observer Effect is the fact that observing a situation or phenomenon necessarily changes it.”6
Point: Scientists make extreme efforts to eliminate the impact of their own presence on whatever they are studying. Human beings give off heat, radiation, air movement, carbon dioxide, bacterial contaminants, oils, moisture, and other factors that impact measured outcomes. Our scientific equipment similarly contaminates the objects under study.
The Hawthorne Effect
One subset of The Observer Effect, related to the study of human behavior, is The Hawthorne Effect. Many decades ago, a study was conducted at a factory named Hawthorne Works. The study analyzed the change in human behavior, especially productivity, by changing the amount of light at the Hawthorne Works and measuring its impact on working practices. Greater lighting led to temporary increases in production. Why? Greater lighting made everything and everyone more visible.
Applications of lessons drawn from The Hawthorne Effect are incorporated into many activities aimed at influencing the behavior of innumerable, randomly selected people whose actions occur simultaneously, or consecutively.
One such application is called the “Red-Light Camera Program.”
“In a Red-Light Camera Program, a camera is installed in a location where it can take photos or video of vehicles as they pass through an intersection. City employees or private contractors then review the photos. If a vehicle is in the intersection when the light is red, then a ticket is sent to the person who registered the vehicle.”7
The idea behind these programs is to reduce cross-street collisions. Theoretically, drivers should fear the possibility that they will be fined and will therefore be more likely to stop at the light, consequently lowering the number of accidents. And in fact, evidence clearly shows that Red-Light Camera Programs are effective at decreasing the number of vehicles running red lights.
Independent Financial Professionals and The Observer Effect
“You may find that making a difference for others makes the biggest difference in you.”
IFPs provide human-to-human accountability, a key value-add that will be hard for computers and AI to ever mimic.
“When a human is involved, we often have few options for totally avoiding the unfavorable perceptions we think others may have about us if we don’t follow through on our goals.”8
Application of The Observer Effect for IFPs
- When an IFP assigns expectations of a client, ones that are SMART (Specific, Measurable, Attainable, Relevant, and Time-based) the client can expect to later account for the results. This will change the trajectory of the client’s behavior.
- An IFP can consistently remind clients that each goal aligns with what the clients want to accomplish. Failure of the clients to follow through on their responsibilities will cause them to not achieve what is important to them.
- An IFP can help clients wisely assess their behavioral motivations by evaluating the ways in which the clients’ various social groups that they belong to influence their spending, savings, and investing habits—positively or negatively.
- Record and send a video of you asking the clients to remember their goals and to inquire as to what the clients have been doing.
- Set up an online group with multiple clients to exchange their progress on their goals and to keep each other accountable.
- Take pictures of your client meetings and share the photos with clients from time-to-time, to add the element of human observation.
- Make a growth chart for clients of their goals that they want to improve on and ask them to share their progress.
- Send a Post-It note with the word “Done” on it and attach it to a copy of the client’s financial goals or milestones that have been achieved.
“What you do for yourself dies with you when you leave this world, what you do for others lives on forever.”—Ken Robinson
The role of an IFP provides fantastic opportunities to demonstrate patience, humility, and some humanity. It also is a privileged position with the power to change human behavior.
The power is more potential than kinetic. To be unleashed, the power to modify the behaviors of clients must follow the normal activities of a professional advisor:
- Preparation: Do the work beforehand. Conduct a thorough client analysis before each meeting, do the research, get a list of questions together before the appointment.
- Client Meetings: Demonstrate care and respect for people’s time through prepared agendas, keeping the meeting on track, and ensuring action steps with responsible parties.
- When Real Life Strikes: When a client faces a difficult personal situation (illness, child/elder care), respond quickly, stay appropriately in touch, follow-up with sensitivity.
By acting in this fashion, an IFP can be far greater than Smith’s “impartial spectator.” Indeed, the IFP can exercise astounding power to affect the clients’ behavior. The clients need this. Even if they are patently unaware of their need.
“I’ve learned that you shouldn’t go through life with a catcher’s mitt on both hands. You need to be able to throw something back.”—Maya Angelou
Here’s encouraging you to Pitch with Power!
- Investopedia https://www.investopedia.com › ho…How Understanding Client Behavior Helps Financial Advisors.
- The Observer Effect | IEEE Conference Publication – IEEE Xplore.
- Hawthorne effect – Catalog of Bias.
- Red Light Cameras May Not Make Streets Safer – Scientific American.