Hey, it looks like all those sales coaches are right — confidence and enthusiasm are what win customers. At least that's what a recent Wake Forest University study found.
The study gave 600 students a choice between two fictional stockbrokers who each recommended the same stocks. Broker A took a cautious approach, talking about risks as well as rewards. Broker B was more gung-ho in his recommendations. The students, says Eric Stone, an associate professor of psychology at the Winston-Salem, N.C., school, overwhelmingly preferred the confident broker. So much so, in fact, that many students believed that the more confident advisor was financially savvier.
“People are overly impressed with confidence, even when it has nothing to do with how good an advisor is,” says Stone, who conducted the study.
Of course, the question remains whether investors who deal with real live brokers would be swayed by confidence as strongly as Stone's students were. After all, younger people tend to be more aggressive investors, because they have a longer time horizon.
However, Stone believes the confidence factor may have even greater influence over many older investors. “In situations where the average person feels out of their league, they prefer to rely on an expert who's confident,” he says.
Several financial advisors agree. “It's simply human nature to want to believe someone who appears to be an expert,” says Paul Merriman, a Seattle-based investment manager and president of Paul A. Merriman & Associates, which manages about $280 million. “In the current market, most investors are afraid. So the minute the advisor begins to start sounding afraid, it's a problem.”
Obviously, confidence can be taken too far. For example, no broker should dismiss a client's concerns just because the broker is trying to keep his or her game face on. And pushing a stock or other investment that isn't suitable for that particular client — because the broker is confident it will be a winner — could backfire.
“Most clients are a lot better educated than they used to be and they can tell when their broker is shooting them the proverbial line,” says Kay Shirley, a certified financial planner in Atlanta who runs her own firm, Financial Development/Mutual Service Corp. “Confidence has to come from evidence.”
In her own practice, Shirley says she tries to show her clients the logic behind a particular investing concept. For example, when she talks about a specific stock, she has plenty of back-up material on hand — broker research, annual reports, SEC documents and recent newspaper clips. And even though clients may not have time to sift through all the material, at least they come away feeling that Shirley was prepared, which in turn, builds confidence, she says.
In the end, being confident could be the key to attracting new business, says Merriman. “We have to put our best foot forward or all of our clients will panic and they'll put their money into fixed income products,” he says. “Basically, our industry needs to figure out how to be as reassuring as mom.”
15 Years ago in Registered Rep
“Those exchanges capitalizing best on technology probably will succeed best. ‘The future isn't sending all orders to a marble hall someplace,’ said Gordon Macklin, NASD president.”
Investors' overall satisfaction with their brokers continues to remain high (91 percent), but now is not the time for self-congratulatory high-fives. According to a study produced by Harris Interactive for the Securities Industry Association, that score has slipped 4 percent from the previous year. Also, the number of investors that reported being “very satisfied” with the service they received from their broker is down to 59 percent, from 67 percent in 2000.
What's behind the dip? Probably the market's performance. The number of investors who reported that they were “extremely satisfied” or “very satisfied” with their investment performance (table) is down to 41 percent, from 65 percent in 2000.