by Ken Haman, AllianceBernstein
Our beliefs are powerful factors in determining how we see the world. They affect how we respond to COVID-19 and how we run our businesses. But compelling evidence from personal experience can help us change our actions and avoid bad outcomes.
Watch Ken Haman explain why now is the time for advisors to reassess their value propositions to stay competitive.
I’m a big fan of Nassim Taleb, author of The Black Swan: The Impact of the Highly Improbable. The title alludes to how Europeans firmly believed that all swans were white—until one man visited Africa and saw a black swan for the first time. Taleb points out that many strongly held beliefs determine how we cope with unexpected discoveries and discusses how humans are affected by limited thinking patterns.
I’m especially fond of his story about the farm-raised turkey’s belief system. The turkey is born into an idyllic life of constant care. Food is abundant, and the turkey has nothing to do but enjoy himself. Days turn into weeks and then months, and the turkey can only conclude that the farmer loves him dearly. What else could he believe, given his experience?
Of course, one day the turkey is in for a shock. He realizes, too late, that his experience did not prepare him for the real world. Taleb is not subtle in his moral of the story: Don’t be a turkey!
What We Believe Determines Our Fate
Another great author, Ralph Waldo Emerson, wrote, “People only see what they are prepared to see.” Taleb’s and Emerson’s ideas demonstrate that beliefs are the defining principles for living our lives. Importantly, both men realized that most of us don’t control our belief systems; rather, our personal experiences powerfully determine the way we see the world. And depending on what experiences we have, our limited beliefs are likely to lead to bad outcomes in a complicated and rapidly changing environment.
Nothing illustrates this better and more currently than the COVID-19 pandemic, during which we’ve seen the power that beliefs have in determining behavior. People who believe in the safety and effectiveness of vaccines quickly embraced the opportunity to be vaccinated. Though imperfect, the vaccines allowed for a return to normal economic activity and the release from social isolation.
In contrast, others believe that the vaccines’ possible side effects are worse than the disease or that the virus isn’t a threat. In places where these beliefs are widespread, we’ve seen a rapid rise in the Delta variant, and hospitals are once again overwhelmed by unvaccinated patients.
Beliefs Are About Strong Feelings, Not Logic
I’ve found it interesting to watch this play out and have observed that firmly held beliefs are often impenetrable by logic or statistics. For those who believe in the effectiveness of vaccines, information regarding side effects or lack of final FDA approval won’t change their minds. For those who are skeptical about vaccines or resistant to authority, no amount of data will sway their convictions.
This is because beliefs are managed by the oldest, most emotional areas of the brain, which are dedicated to survival: the cerebellum, the amygdala and the limbic system. Logic, language and information processing have little impact in these areas. This is also why some people are emotional about vaccine mandates and the requirement to wear masks.
Beliefs are about survival. They’re characterized by very strong feelings. Based on how the brain functions, people can easily end up in shouting matches.
Personal Experience Changes Beliefs
There is something that does change beliefs: personal experience. Regions in which there are explosions of the Delta variant are also showing increased levels of vaccinations. It’s now common to see people speaking from their hospital beds or from the bedside of a loved one about how they’ve changed their minds about the vaccines.
Personal experience has altered their beliefs. People learn quickly from painful or life-threatening experiences. The human brain is a fantastic survival machine, and once it has compelling evidence (from personal experience) about how the world works, it can shift gears in a split second.
This makes me optimistic about the future. As more people are impacted by the virus, they and the people around them will have the experiences they need to change their beliefs. This will allow our country’s economic recovery to stay on track.
What Does This Have to Do with Being a Financial Advisor?
This brings me to a very important question: What do you believe about the future of your advisory practice? Do you believe that things will get back to “business as usual” and that clients will happily continue to pay you a 1% fee for your portfolio-management services? Or do you see compelling evidence from personal experience that fee compression, digital competition and an entire generation of Baby Boomers transitioning to retirement will redefine the way financial services are delivered in the US? Remember the turkey: what you believe will define how you see the world, which will determine what actions you take.
Putting It into Practice
Neal Templin’s August 7 article in The Wall Street Journal—“Say Goodbye to the 1% Investment-Adviser Fee?”—makes a logical argument that our industry is in the midst of a major disruption.
Of course, if you believe that “business as usual” is right around the corner, your beliefs about the future of your business won’t change. However, if you see what I see on the horizon, you’re prepared to use re-entry as an opportunity to redefine your value proposition and refine the experiences you deliver to your clients.
If you are in the second category, your AllianceBernstein wholesaler has a set of practice-management tools and solutions to assist with this reengineering process. Our Digital Coach is designed to help you prioritize the areas of your business that you want to improve. You can also speak with your AB Regional Manager about personal coaching. If you’re prepared to see the future differently, we are prepared to get you to that future successfully.
For a deeper dive into how to evaluate your business practices to prepare for the future, register for the next AllianceBernstein Advisor Institute webcast on September 15th or visit https://alliancebernstein.com/go/abai for additional resources.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.
This post was first published at the official blog of AllianceBernstein..