Why Financial Advisors Are Magic

You hear a sound in the night. You leap out of bed, heart racing. You grab the inuit soapstone carving from your nightstand to use as a weapon and creep over to the window. Until your shoulders drop and you exhale when you realize it’s just a raccoon trying to tip over your garbage can.

The human animal is very good at detecting and assessing threats. We use this facility all the time in social relating. When we encounter someone new, we quickly determine whether that person is likely a friend or foe, and whether they seem capable of carrying out their good or bad intent.

Susan Tufts Fiske at Princeton University suggests that we evaluate both people and brands on the dual axes of “warmth” and “competence.” We do this unconsciously, and stereotypes are essentially built on this framework. It shapes how we feel about people and also how we feel about institutions and commercial brands.

Here’s a look at the four quadrants of warmth and competence:

Low warmth + High competence

Scientists and computer nerds are great examples. We all know they’re smart as heck, but they’re often portrayed as evil geniuses or antisocial hackers. Among brands, German cars and Facebook fit here. They work well, but they’re cold and they make us a bit nervous.

High warmth + Low competence

This is a bittersweet quadrant where grandparents and kindergarten teachers dwell. They’re sweet but you sure wouldn’t trust them to do your taxes. From a brand point of view, this where you might file public transit workers and your mail man or woman. We like them but we kind of pity them.

Low warmth + Low competence

Welcome to the dregs of society. This is where we file the poor and unwashed who we stereotypically assume are either uninterested or unable to do anything positive. This is also where we file contemptible brands like banks, insurance companies and Donald Trump.

High warmth, High competence

If you’ve ever met a surgeon with a comforting personality, you feel like you’ve just had a magical experience. Someone with mega-intelligence and very clean hands who’s here to save your life? Wow! This is also the sweet spot for brands we admire, like Campbell’s Soup, Coca Cola and Barack Obama.

As a former financial advisor who develops branding and content for the financial industry, I’m interested in the future of advice. I think there’s an interesting insight from the warmth and competence model, mainly concerning the persistence of human financial advisors. 

It’s no secret that everybody wants to get rid of financial advisors. 

Many consumers understand that the fees they pay to a financial advisor can erode their savings, sometimes to the tune of hundreds of thousands of dollars.

The margins at brokerage firms are squeezed by the weight of the compensation and infrastructure it takes to support an advisor-based distribution model.

Startups backed by hundreds of millions of dollars in venture capital are working around the clock to “democratize” the investment process, largely by squeezing out financial advisors.

And yet, they’re still here. The Government of Canada says the labour market outlook for financial planners is positive. Robo-advisor assets under management are only a tenth of the expert projections from five years ago.

I think the reason is that digital investing services are low in warmth and hard to pin down on competence. How is a consumer supposed to feel that a website truly cares about them? And, absent a degree in finance, how are they supposed to trust that the website actually knows what it’s doing?

Financial advisors are not cheap, can be unruly, and carry the potential to undermine the corporate brand every time they open their mouths. But, to a consumer, a real human, even an imperfect one, can project the warmth and competence that we instinctively need to feel safe.

Like a financial surgeon with a cosy bedside manner.

Like magic.