How understanding the Paradox of Choice can make finding a financial advisor easier
Let’s face it, financial advisor lead generation leaves something to be desired. Back in 2000 one of my most favorite research papers of all time, When choice is demotivating: Can one desire too much of a good thing?, was published by Sheena Iyengar and Mark Lepper in the Journal of Personality and Social Psychology. This ground-breaking paper on what has become known as Choice Overload or Paradox of Choice, challenged the implicit assumption that having more choices is better (more motivating and more satisfying) than having fewer. But that is not right. More choices, the research finds, make choosing harder AND too many choices, if forced to choose, lowers satisfaction with one’s choice.
- Choosing from 6 options (jam or chocolate or essays) leads to more “sales” when compared to asking people to choose from more extensive arrays (24 to 30 depending on the experiment).
- Choosing from a smaller number of options was also associated with greater buyer-satisfaction, compared to more extensive arrays.
The Paradox of Choice when it comes to selecting a financial advisor
Imagine this: People are searching for a financial advisor hundreds of thousands of times a month. Their search results lead them down a path of plenty, and not in a good way. Searching for “financial advisor”; they’re asked to choose an advisor out of hundreds if not thousands of options. Hard stop. This process is broken; it is choice overload.
Worse. What happens next? Nothing. The consumer is overwhelmed to the point of not being able to make any decision. Deciding which jam to pick, the negative impact is low. When it comes to selecting the right financial advisor, the negative impact can be very high.
When to expect choice overload and why
The study from 2000, because of its far-reaching impact on consumer behavior and sales, has since been recreated and taken a fresh look at many other products and industries. And in 2014 a meta-analysis, a type of research that reviews other research articles for efficacy and overarching patterns or frameworks that would not have been seen within a single paper, was completed by Alexander Chernev, Ulf Bockenholt, and Joseph Goodman on Choice Overload. The meta-analysis added to the original work by Iyengar and Lepper and showed not only that Choice Overload was indeed a concern, but it also had a pattern. Researchers could now see when to expected it and why:
- Choice Overload is an issue when people want to be able to make a decision quickly and easily (and given the options – 27 types of Jam, they can’t)
- Paradox of Choice weighs heavy when making the “right” decision (probably more important than just decisions about jam) really matters
- Choice Overload paralyzes when it is difficult and the consumer’s responsibility to differentiate between similar products
- Paradox of Choice frustrates when consumers are not sure what their preferences should even are
This research suffices to say, making choices is really hard and very often a great many industries and a great many products end up making it harder. Yet, there is also good news. Industries and products can and are doing a better job, now understanding that more is not always optimal, at becoming and being more consumer friendly. Netflix, as just one example, invests heavily in deep learning models to figure out and then suggest what a consumer will want to watch, narrowing the 1000s of choices available to them.
Jeez! I need someone to help me with my financial problem, now I can’t decide who to have answer it!
Conversely, the financial industry is one industry where a lot of improvement is still needed. The industry of professional financial advice is still selling 27 (sometimes 27,000) different types of: Jennys, James, Jaimes, Jamals, Jerrys, and Jakes. And consumers cannot tell the difference or decide what differences matter most.
When prospects, would-be-consumers of financial services, relationships, and products, get up enough gumption to FINALLY reach out for advice, it ends in choice overload. Most “find an advisor” tools ask for a zip code and then provide the consumer, based on the zip code, with a list of far too many advisors. The prospect had a tax problem and now they have a paradox of choice problem on top of it! And worse, based on the meta-analysis, choosing an advisor or a financial service is one of those choices that people:
- Want to make easily and sometimes quickly (rough tax year or a new baby can quickly light fires), but can’t
- Need to get right, but can easily get wrong
- Try to understand differences between professionals and services, but struggle
- Care to have preferences, but are not entirely sure what to expect or what they need
The most basic of tools to get consumers started down a path to bettering their financial lives, “find an advisor”, fails them. Massively. Yet, as before, it does not have to be this way. Simple changes can be made, and are already being made at Couplr, that improve the consumer experience.
Just Make the Find-An-Advisor tool Easy!
The solution for the “find an advisor” tool problem is not as simple as only limiting the number of advisors shown to the consumer. This would be a big useful step, but it must be the second step, not the first. It did help to go from 27 jams down to 6. People have known preferences (strawberry over peach) and they could easily access and rank those preferences to choose from the 6 jams. Yet financial relationships, and apparently figuring out what to watch on Netflix at night, are more complex. We need more help with our preferences.
To make the process of finding a professional financial relationship easier, it needs to start with defining and understanding preferences. One way to do this is to give consumers a list of preferences. These may start with simple preferences: male or female, X years of experience, specialty in X financial service. Think of this as going from 200 different types of jam, down to just 6 types of strawberry jam. Then from those 6 types of strawberry jam, other finer-tuned preferences can take the stage.
- I like strawberry and rhubarb. I do not like strawberry and apple.
In financial professional terms, once a few basic preferences are out of the way: male advisors with experience in tax, and 10+ years of experience. Then more nuanced information about that financial planner can shine and the 6 planners that a consumer sees can then be more easily compared side-by-side for: risk, personality, other commonalities. Just like strawberry jams being compared side-by-side for their secondary ingredients after the preference for strawberry narrowed the field of all types of jam. Financial advisor lead generation can learn a lot from how we pick a jam.
Give us Choice, just not Choice Overload
Consumers don’t need artificial intelligence to choose a single advisor for them. No single person wants a dating app to show them THE single person that they should marry. No Netflix watcher wants Netflix to only give you a single suggestion and force you to watch it. Consumers want some choice, just not a choice overload.
Equally important, financial advisors and the companies they represent don’t want the quality of leads that might make it through this type of financial advisor lead generation experience.
If you are reading this article and are responsible for financial advisor lead generation at your company, or are working in a practice of more than 6 advisors – reach out to us at Couplr. Couplr understands the paradox of choice and knows how to fix it. Couplr has a solution for “find an advisor” and can help you to have one too.
Meghaan Lurtz, Ph.D
Derek Notman, CFP