Curse of Knowledge

Three simple words can help us understand the problems many advisors face as they attempt to engage their clients toward retirement success: Curse of Knowledge.[1] Advisors know so much about their own world that they forget the context of those they seek their help and end up not being helpful to anyone. The good news is that becoming aware of this disconnect can help advisors take steps to address and overcome the challenge.

Coined by Colin Camerer et al.,[2] the phrase describes how people who have significant knowledge assume that the people to whom they are speaking (1) have more knowledge than they actually do, and (2) understand what is being communicated when in reality they do not.

To better understand the concept, play this simple game, which replicates a study performed by Stanford University graduate students. Make a list of familiar songs most everyone knows and then form a group with two other people. Share the list with Person A, asking him or her to tap out the rhythm of each song. Have Person B write down the name of the song they think was tapped out. Then ask Person A to guess how many songs Person B identified. Person A typically overestimates the number of songs that Person B guessed correctly. This is a simple example of the Curse of Knowledge.

Advisors immerse themselves in financial data by reading trade journals, pursuing continuing education, answering clients’ questions, running illustrations, interacting with colleagues, and more. They happily live in the world of financial information that would give many other people a migraine. This wealth of information brings many benefits, but it can become a curse if the advisor fails to spend time thinking about the client’s perspective.

Consider the average person’s engagement with financial information. Most 401(k) participants don’t even use the plan portal to manage their accounts, and while defined benefit plans were designed to make it easy for people to understand their benefits, most don’t. These two facts should help financial advisors realize that most clients are not ready to engage in the financial analysis that advisors live in each day.

With this in mind, I’ve identified three questions advisors can ask themselves to improve their message and better engage current and prospective clients:

  1. How meaningful is this information to my client? Or, what is the felt need of my client? Financial advisors may think all aspects of financial information are meaningful, but they should focus on the perceived relevance for their client. In other words, advisors need to think from the client’s perspective. In reality, most of a financial advisor’s data simply is not perceived as meaningful by most clients.
  2. What is concrete for my client? Each subject falls on a continuum between abstract and concrete. The more ready a client is for retirement (or the closer the client is to retirement), the more retirement subjects become concrete for the client.
  3. What is actionable for my client? The more actionable a topic is, the more engaging the education will be, and vice versa.

To optimize the education process, a topic must be meaningful, concrete, and actionable to the greatest possible extent. Let’s consider how these three criteria play out in a few examples:

  1. Asset Allocation
    Discussions about asset allocation are meaningful for clients with retirement savings but almost meaningless for someone without much savings. The subject as a whole is probably near the midpoint on the continuum from abstract to concrete, but isn’t very actionable besides filling out an asset allocation questionnaire. Speaking with a group about asset allocation would likely be very abstract.
  2. Debt Reduction
    Discussions about debt reduction are meaningful to those who have debt, and when done right those conversations can be concrete, especially in a one-on-one meeting. However, in a group meeting, that same topic could easily become generic and abstract.
  3. Retirement Planning
    Discussions about retirement planning are meaningful for almost everyone and may be concrete if they are presented with clear facts. (In contrast, a Monte Carlo analysis would make the topic more abstract.) The topic certainly becomes actionable by focusing on any retirement planning deficits your clients may have.

Your analysis of these three examples may differ from mine—and that’s fine. What’s important is to analyze topics from the perspective of your audience—not the perspective of someone with financial expertise. Adopting this approach will help you improve your engagement with current and potential clients.

 


Blog Link References:

[1] I heard this phrase in my recent podcast interview with Jonathon Schultheiss, Managing Director of Strategic Retirement Partners. Click here to listen to that podcast.

[2] Camerer, Colin & Loewenstein, George & Weber, Martin. (1989). The Curse of Knowledge in Economic Settings: An Experimental Analysis. Journal of Political Economy. 97. 1232-54. 10.1086/261651.

Subscribe for Blog Updates

Get our newsletters and notifications of our latest blog posts


Key Elements to an Effective Virtual Meeting – Part III

How can we communicate with clarity? Knowing where participants are today is critical, and having concrete steps to move forward allows them to make better decisions.

Strategic Social Security Education Opportunities Abound

Nationwide Financial recently asked retired and non-retired consumers about Social Security.  The study revealed that most of the non-retirees did not know or understand their future benefits or how they would fit into their broader retirement plans.  Few had received advice on Social Security...

Can your clients afford their kids’ college education?

Retirement isn’t the only thing for which many families are saving; many are also trying to save for their children’s future college expenses. Faced with the need to save for retirement and the desire to save money to help defray soaring college expenses, many families are feeling overwhelmed. If...

Better Participant Outcomes: The Solution

Advisor-driven education uses a three-pronged engagement process to connect personally with participants: Connect Internalize Initiate.

Secret to Better Client Engagement and Fiduciary Relationships

How do you feel when a client doesn’t take your advice? You clearly presented and explained everything to your client, only to hear “OK, let me think about it.” Simply put, you will win over more of your clients when you focus on engagement and education.

Common Misconceptions About Social Security

Clients come to the retirement planning process with many misconceptions about Social Security. With inaccurate information circulating on social media and by word of mouth, financial advisors shoulder a lot of responsibility to educate clients in this area, helping them achieve a better...

Grow Retire Ready Clients Podcast

After 33 years of developing retirement planning software, answering support calls, attending trade shows, developing updates, and designing new tools, we thought it was time to start sharing many of the amazing stories we have encountered. So we started a podcast to let advisors tell their stories.