Sound Bites

What do presidential elections and wealth management campaigns have in common? Both want you to make a very important decision based on a soundbite.

Most people will tell you they’re too smart to fall for soundbite advertising, but even the brightest among us can have our judgment subverted by soundbites that are simplistic and emotional.

Soundbites work because they are designed not to appeal to our rational brain.

In his best-selling book, Thinking, Fast and Slow, Daniel Kahneman, winner of the 2002 Nobel Prize in Economic Sciences, noted that most of our decisions are based on snap judgments in the unconscious part of our brain. That is the gray matter we relied on when we used to roam the savannah and lived in small colonies.

"System 1" thinking, as Kahneman states, is intuitive, rapid and emotional. It operates almost like instinct. "System 2" thinking, he notes, demands more analysis and work.  By nature, this type of thinking takes more time.

In fact, most people default to System 1 thinking because it "just feels right" and requires less effort, even though it may lead to faulty decisions. We need to use System 2 to make good decisions.

Financial Service’s Swing State

Applying Kahneman’s perspective to politics – and wealth management – it turns out many wealthy investors are the financial services industry’s swing state voters. The huge advertising budgets that produce “feel good” claims like “we always put the interests of our clients first” are the mirror image of political attack ads. 

As a practical matter, many wealthy investors don’t subject the selection of a wealth advisor to as much intellectual rigor as they should. Bombarded by all sorts of emotionally charged messages and recommendations from friends and family, investors often fail to make a rational decision.

So how should investors wired for System 1 thinking proceed? In two ways.

First, they should slow down and plan on spending enough time to understand an advisor’s perspective. Investors may need a half-dozen meetings to have their questions answered by their prospective advisor. They also have to spend enough time to determine whether the advisor is trustworthy. If a firm won’t spend the time with an investor during the courtship phase, the decision should be obvious.

Second, investors need to determine if their prospective advisor is committed to sharing information. Does the firm publish its point-of-view in white papers, blogs and other research? Do you understand the firm’s values? Does their stated behavior match their actual behavior as you are getting to know each other? By reading everything a firm makes available publicly, investors can unearth important clues about how they will be treated as a client.

An Educated Voter
The most informed voters, like the smartest investors, do their homework. They don’t believe attack ads alleging that President Obama was born outside the U.S., or that Mitt Romney doesn’t care about 47% of Americans.

So with just six weeks left before the election, we want to offer a radical proposal: Take time to seek another perspective. 

If you’re a dedicated FOX News viewer or The Wall Street Journal reader, tune in to MSNBC or check out The New York Times. Spend some time reading the platforms of both major parties. (Republican and Democrat)

Likewise, do the same before choosing a wealth manager and consider an independent advisor. Chances are independent advisors won’t have any soundbite advertising. But they are more likely to spend enough time with you and provide lots of opportunities to understand who they really are. Here is a recent list of the Top Independent Advisors ranked by assets.

I am the Wealth Consigliere, and I approve this message.


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