How Great Advisors Build Trust with Herman Brodie

Sean Walters: Hello, hello. Welcome to The Exceptional Advisor Podcast from the Investments & Wealth Institute, where we explore ideas, challenges, and opportunities shaping the future of advice. My name is Sean Walters, Chief Executive Officer of the Investments & Wealth Institute. In each episode, I sit down with leaders, thinkers, and practitioners from across the profession to talk about what it really takes to serve clients and lead with excellence in a changing environment. Today our guest is somebody we’ve worked with at the Institute for many, many years. Our conversation today is about trust, communications — we’re going to get into some behavior, decision making, who knows where we’ll go. Ultimately, we’re looking to help advisors make a professional advantage out of the behavior, the trust, and the relationship they have with their client. We’re welcoming today Herman Brodie, a behavioral scientist who’s spent years helping financial professionals better understand how people make decisions, why they become reactive, and what it takes to build trust when emotions, uncertainty, and attention are all in play. Herman, welcome to the show.

Herman Brodie: Thank you. It’s good to see you again. Thank you very much for inviting me.

Sean Walters: So Herman and I met in Australia — gosh, it’s got to be 10 years ago now. He’s a behavioral scientist and speaker who was presenting at one of our affiliates in Australia, and we added him to our program probably about 10 years ago as well. We’ve been fortunate to have Herman as a presenter at our conferences pretty much every year or two since then. So it’s great to have you with us today. Let’s start with a question. We’re a professional association — financial advisors are our members, and we’re a community, and communities of people are often helped out by other people in their career pathing. So I usually start with the question: is there somebody who helped you get your start in the field you’re in, Herman, someone who was particularly instrumental in nudging you along the path you’ve taken?

Herman Brodie: For sure. And quite remarkably, it was actually a trainee who was on the desk at an investment bank I was working at. That trainee introduced me to an academic paper — the first one I’d ever seen that touched the subject of behavioral finance. And it seemed to explain everything that had gone wrong in my professional career ever since the start. I’d already been involved in the markets a good 10–15 years by the time this trainee came along, having studied finance and economics and then entered the capital markets one month ahead of the October 1987 meltdown — seeing people doing things they were not at all prepared for in my academic career. Then, going on year after year, seeing market developments and financial decision making at a professional level that was not at all consistent with the way I’d been trained. When I first saw this paper, it was essentially a revelation for me. It changed completely my outlook on capital markets, and ultimately the direction of my career.

Sean Walters: Well, that’s great. What’s one of the things that’s most rewarding to you today about the career path you’ve taken? What do you enjoy most about the work you’re doing within this field?

Herman Brodie: Well, I work with a lot of financial institutions — fund managers, financial advisors, professional institutions like yourself, private wealth managers, as well as brokers. It’s the ability to go in and explain certain elements of financial decision making, or various elements of group decision making, client relationships, communication, change management — and to see the reaction. It feels almost intuitive once you know it, but the recognition from others that yes, we can make small changes, inexpensive changes, and have these have incredible impact on our outputs, our returns, our relationships, our communication, et cetera. So the knowledge that you can have such a great impact, from a very modest intervention, on the way people are working and the results for their firms.

Sean Walters: You and I could go in a lot of directions with these questions. In fact, I remember last year in Austin at our conference, you and I grabbed a pint of Guinness at a local pub and we talked about all kinds of topics. I wish we could have that format here today, but the microphones wouldn’t pick up stuff as well. So we’re going to have a similar kind of conversation, just without the Guinness in front of us.

How Can Advisors Keep Clients Focused in a Distracting News Environment?

Sean Walters: One of the things that I think is on the minds of a lot of advisors these days, when they’re dealing with their clients, is just how much is going on in the environment — the world, their communities, the markets. We’re constantly operating in an environment where there’s so much noise, headlines, and fear, quite honestly. How would you advise advisors to focus their clients on their objectives and goals in this attention-driven environment that’s constantly pulling them in other directions?

Herman Brodie: The truth is, there have always been reasons for our attention to be dragged one way or the other. It’s not just a recent phenomenon. It’s our human nature that our attention is directed to things that are salient in our environment. So unless we deliberately direct our attention to something, it will automatically be drawn away to things that are salient. Things that are salient are, of course, those bright, shiny objects that pass in front of us from time to time — but also anything that is volatile, anything that changes. And we do not pay attention to things that are static, or that don’t change, even though those things could be very, very important for our health, our wealth, and our happiness. So in a sense, we have to play the role of somebody who constantly — and I say constantly — reminds people that things that don’t change are also very important. Things that change, of course, it’s important to pay attention to some of them so we can integrate that information into our knowledge and make decisions. But they are not necessarily the most important things. These days, what has changed over recent years is that there is an army now of psychologists, armed with this knowledge about the things to which people pay attention, deliberately creating content that is just more addictive. But even before this happened, it’s our human nature to be attracted to things that are salient. The thing is, most clients, I would guess, know what is good for their health, wealth, and well-being. The problem is, because of these salience distractions, they don’t choose them. And this is where advisors must help to educate people.

Sean Walters: I had a follow-up question on that, because I could see, even just in dealing with my own employees who are feeling certain ways about certain subjects, that you have to have this balance between coming across as dismissive of what they’re feeling and trying to focus them on the work at hand. And that’s similar with clients, right? How do you get advisors to not dismiss their clients, or make them feel they’re being talked down to, while shifting them from those noisy distractions to the real work at hand and what they need to stay focused on?

Herman Brodie: Yeah, I think they know what’s right for them. Let me make a little exercise. Let’s say we’re going to pause this interview for 60 seconds. And I say, during these 60 seconds, there are a couple of things we could do. We could either, A, spend 30 seconds with a breathing exercise where we just listen to our own breath — we breathe in, we breathe out, we listen to our heartbeats, and we calm ourselves down, separate ourselves from the world for 30 seconds — and then, in the subsequent 30 seconds, we’ll think about all of the things and the people in our lives we are grateful for. We’ll think about our families and friends, our loved ones, our sports, our hobbies, our passions in life. We just think about all the things for which we are grateful. Alternatively, option B: we can check our smartphones to find the latest news of what’s going on in the Middle East. Now, if I ask people, which of those two things do you think would contribute most to your health, wealth, and happiness? — and then you look at what people actually choose — you’ll find they don’t always choose the things that are in their best interest. Because the latest news on their smartphone is simply more salient. And the things that don’t change — relationships with our families, for example, or our passions for our sports or hobbies — because they don’t change, they’re simply not salient. Our health, if we enjoy good health, is not salient for us until it worsens. And yet it contributes enormously to our well-being. So with examples like this, we can demonstrate to people how important it is to consciously direct our attention to certain things at regular moments during the day, the week, the month, et cetera.

Sean Walters: That’s a great exercise. And it’s such an important note — to get people out of their amygdala, where you’re constantly scanning for threats, and into where you want them to be, which is thinking about what’s important moving forward.

How to Build Client Trust Across Political and Ideological Divides

Sean Walters: This is related to one of the concepts you’ve talked about: behavioral residue — the idea that past experiences can leave a lasting mark on future decisions. How does that show up in client relationships, and why does it matter right now?

Herman Brodie: Yeah. At the outset of my career in investment banking, one of the older and wiser colleagues said to me, “Well, Herman, whatever you do with clients, don’t talk about religion or politics, because what’s going to happen is you’re going to run into somebody who doesn’t share your perspectives, your outlook on life, your beliefs, and it’s going to be very difficult to communicate with.” I took this on board, and I generally followed that advice. But what we’ve seen over recent years is not only that there are differences — we’ve seen an incredible polarization in our societies in the US. I’m sure you’ve seen it here in the UK as well. There’s been an incredible polarization. In fact, social scientists even talk about what we call these “mega identities,” which are largely partisan and politically based. And what you find, in terms of a trust relationship, is that it’s very, very difficult to communicate with people if you suddenly find yourself on opposite ends of this partisan divide. The idea that we should not talk about politics or religion doesn’t help, quite simply because we leave traces of our mega identity everywhere we go. People on different sides of the partisan divide aren’t even watching the same TV shows. They don’t listen to the same music. They don’t dress the same way. They don’t talk the same way. As a result, you leave traces of your identity behind you, even before you’ve opened your mouth the very first time. So if I’m trying to explain something to you and I use a reference from a popular TV show — where character A did this to character B, as a means of explaining something — it could well be that if somebody’s on the opposite end of an ideological divide, they don’t watch that show. And the knowledge that you watch it is proof to them that you are not like they are. Therefore, any communication between you is going to be complicated; it becomes much more difficult. You see, when we believe something, we tend to be convinced that our own ideas and reflections are well founded, that they’re very robust and unbiased — in the way that other people are biased. And so, when somebody comes along with a different set of ideas or beliefs, we think they’ve lost their mind. Now, if you think somebody has lost their mind, you’re not going to take advice from such a person, and you’re certainly not going to listen to their arguments. So the idea that we should not talk about something just does not hold water any longer, because you give yourself away as a result of the behavioral residue you’re leaving behind everywhere you go.

Sean Walters: So are you advising that we do talk about it, or that we empathize more and listen more? How would you bridge that divide?

Herman Brodie: It doesn’t matter whether you talk about it or not. It doesn’t make sense to talk about it, but not talking about it doesn’t mean you’re not giving it away. In trust building, one of the simplest ways to begin a high-trust relationship — and I’ve recommended this in my book and in talks, I’ve always emphasized this — is that early in the relationship, you should say something personal about yourself. Reveal something personal — something that is perhaps a little embarrassing, perhaps a little bit humbling. Because when you do this, it has a two-fold effect. Firstly, it makes you vulnerable to the other person: “Yes, I’m going to tell you something about myself; this is something I don’t want screamed from the rooftop, but I’m happy to share it just between you and me.” If I do this, it reveals to the other person that I’m ready to be vulnerable toward them. And vulnerability is the basis for a high-trust relationship. Typically, they will be vulnerable toward you to reciprocate the gesture, and it’s this environment of mutual vulnerability that is the basis for trust. The second effect it has is that it reveals to the other the kind of relationship you’re going to have: this is going to be the kind of relationship where we can share things with one another, we respect each other’s privacy and confidentiality, and we can be open with one another. This is the basis for every kind of high-trust relationship. No trusting relationship has ever been created without somebody being willing to be vulnerable to somebody else. And if there’s an ideological divide, you can still use the same technique by sharing personal narratives — things that have happened to you in relationship to the thing you want to explain. So if we’re talking about what happens after the death of a loved one, for example, or a divorce, or something very challenging and difficult where the ideological divide could interfere with good communication — it’s pointless to come with data or statistics, because if you’re on the opposite side of the divide, the other person thinks you’re crazy anyway and won’t attach much validity to your statistics or their source. But if you share a personal narrative about something that’s happened to you personally, this can demonstrate to the other that you prioritize honesty and vulnerability above things like data or self-promotion. So it has to be something not just personal, but perhaps even a little bit embarrassing, humbling. And if you try those personal narratives, the research has shown it can even help bridge those ideological divides. So it’s not a question of not talking about religion, because it doesn’t make any difference. The goal is to be able to communicate with somebody even though they don’t necessarily share your identity.

Sean Walters: The identity we share is humanity. And so sharing something human is what connects us. If you share abstract ideas — political, religious, or other — that’s not going to connect us as much as that vulnerability and what makes us human.

Herman Brodie: Exactly. That’s exactly it.

Competence Trust vs. Benevolence Trust: What’s the Difference?

Sean Walters: That’s so powerful, and it leads us into our primary topic: trust. One of the things you’ve talked a lot about is this dual axis. It was so helpful to me when you discussed the difference between benevolence and competence — those are both forms of building trust, and you might need to give a brief on that. But I want to ask a related question about AI, because AI does create knowledge and competency, intelligence. How does that affect an advisor’s ability to bridge that trust gap with a client, if the AI competence piece is being messed with as a result? So first, talk a little bit about benevolence trust versus competence trust, and why those are such important differences.

Herman Brodie: So when we make a judgment about somebody, or about a firm, we don’t actually do it on a single dimension that stretches from good to bad. We invariably make two judgments about the other. We make a judgment about their competency, of course: does this person have the skills, the resources, the training, the contacts, et cetera, to make good outcomes happen? But we also make a second judgment simultaneously, about their intentions toward us. What are their intentions toward us? Are these individuals, or this firm, motivated to make those good outcomes happen for me? Or are they pursuing their own selfish agenda? And it’s the combination of those two judgments, whenever there’s a backdrop of risk — if I’m in a situation where I can be harmed by the actions of the other — that combines into an overall judgment we call trust. So for a client to trust you, they must be convinced not only that you are able to act in their interest, but that you are willing to do so as well. That is what trust is. The thing is, of those two judgments, the one that carries the most weight, and the one that’s always made first, is the judgment about the other’s benevolence. That is the primary judgment, always made first. The problem is, in the financial services sector, professionals have a tendency to want to distinguish themselves from others by virtue of their competency, and they spend too little time talking about their benevolence. They have benevolent intentions, of course — don’t get me wrong — but they’re not very good at showing it. And this is why, for most clients, most financial professionals all look the same: because most of them dwell very much on their competence and spend far too little time talking about their benevolence.

Sean Walters: One adage you used that really stuck with me was the comment that trust takes a lifetime to build and a moment to lose. And you said, well, that’s partially true and partially not true — and it’s related to competency-based trust and benevolence trust. Talk a little bit about that.

Herman Brodie: Yeah. We did the research for the book, and there’s no evidence for this expression whatsoever. You’ll see it everywhere, all over the internet, but there’s no evidence for it. In fact, what we discovered is that trust isn’t one thing to be built and destroyed — it’s two things to be built and destroyed. There’s this perception of competence and this perception of benevolence. Competence judgments, indeed, do take years to build, because they are based on our own observations: we watch somebody over a long period of time and come to the conclusion that they’re competent. Or we use somebody else’s observations — things like track records, or academic qualifications, which are just somebody else’s observations. So those take a long time to build. But let’s say there is a bad outcome, a single bad outcome. Our judgment about the other’s competence is not going to be destroyed straight away; sometimes the means are just not sufficient to achieve a good outcome every single time. But if there is another bad outcome, and then yet another, and yet another, then slowly our perception of that individual’s competence is going to be eroded. So competence judgments take a long time to build, but also a long time to destroy. Benevolence judgments, on the other hand, can sometimes take only seconds to build. You can meet somebody for the very first time, sit down for a coffee, and come away with the impression: that person, yeah, I think they’ve got my back, I think this person will genuinely try to help me. And the signals that create this judgment of benevolence very often have nothing at all to do with the task. It could well be that that person simply made themselves vulnerable to me, and I appreciate that they trust me, and therefore I’m motivated to trust them. But if subsequently we learn that that person in fact does not have my back — that secretly they’ve been pursuing their own selfish agenda — then of course that benevolence judgment will be erased in seconds. So benevolence judgments can be destroyed in seconds, but chances are they only took seconds to build in the first place. So what’s important to figure out, when somebody says trust has been lost, is what kind of trust — which of those judgments has been compromised. And the simple way to do it is to look at the sentiment of the client. If the client is disappointed — that’s what they feel, disappointment — then you’ve lost the competence perception. If the client feels betrayed, then it’s the benevolence judgment that has been lost.

How to Rebuild Client Trust After Disappointment or Betrayal

Sean Walters: How do you build that back? For example, let’s say there’s a prolonged period of market downturn. The client feels as though their advisor, from a competence standpoint — even though the advisor doesn’t control the markets — is not doing what’s best for the client. Or they start to feel that trust drop: maybe this advisor isn’t the right advisor for me. How do you balance those two aspects when dealing with that type of environment?

Herman Brodie: If you’re getting a disappointing outcome — the client is disappointed — then typically rebuilding trust involves increasing your resources. You need to invest in people, in training, in education, in technology, so that in the future you can get better outcomes. If you’ve betrayed the client — meaning you’re not doing the things you promised, or secretly you’re doing things not in the client’s interest — well, there are still things you can do to try to win that back, but your expectations for success have to be sharply downgraded, because it’s very, very difficult to come back from a betrayal. It’s easier to come back from a disappointment than from a betrayal, for sure. I remember there was an instance at one of our conferences. I was talking precisely about benevolence and competence, and that benevolence is the more important of the two — double the weight, in fact, of competence. It’s like two-thirds benevolence, one-third competence in that judgment. There was a couple at the back, on the left-hand side, and they said, “No, Herman, I don’t think you’re right.” A husband-and-wife team, this was. They said, “We are an incredibly benevolent firm, and we had a client who left us for another firm because they said that firm had better technology. So even though we are benevolent, they left us because they perceived the rival firm as more competent. So that can’t be right, what you’re saying.” Well, I had to push back a little bit on their description of themselves as benevolent. I said, benevolence is purely a judgment made by the other. It’s not necessarily a trait that you, as an advisor, can adhere to — you can try to be benevolent, but only the client can perceive you as such. But putting that to one side: presumably there is no reason why that firm could not also have had the same technology as the rival. So why don’t they have it? Did they evaluate this technology, consider the impact it might have on the client’s outcomes or the way they work, and weigh that against the costs of implementing it and the cost that would be passed on to the client? And did they come to the conclusion that, given what the client needs and what they promised the client, the cost-benefit of implementing this technology is simply not justified — and then communicate that evaluation and decision to the client? If they did this, the client would nevertheless probably perceive them as benevolent: “Thank you for taking the effort to make this evaluation.” Or — the reason they don’t have the technology is that they couldn’t be bothered, that’s not the way we’ve worked in the past. Or perhaps they didn’t even know the technology existed, because they’re not keeping up to date with the latest developments in the industry. If that’s the reason, the client could perceive them as not competent. So the simple fact that they don’t have the technology, and the client left for a firm that does, does not mean the client prioritizes competence over benevolence. It depends on the reasons. They should look more closely at the reasons they don’t have that technology, and the reasons for the client’s move.

How Does AI Affect Advisor–Client Trust?

Sean Walters: Let’s use that example. I’ll be vulnerable and tell you a story about my experience with AI. I went to the doctor to have some blood work reviewed earlier this week, and I was waiting. So I pulled open my favorite AI application and typed in all the numbers I’d been given — this maze of data you get with blood work. There are all these different numbers and some descriptions, but they’re not really written for humans; they’re written for doctors to translate to their patients. By the time the doctor showed up, I’d already had a pretty good sense of what everything was telling me. So I was sort of sitting back to see: are my doctor and the AI telling me the same thing? There was a moment, right? And I know this is kind of the new normal for the knowledge professions, advisors included — clients are going to walk in with one set of information that’s often presented really well by an AI tool, alongside their advisor. So how can that benevolence-and-competency framing help advisors navigate this successfully? What I liked about what my doctor did is that she said, “What did it say?” She didn’t fight it at all. She said, “Wow, that was really good.” So it wasn’t so much “I’m smarter than the robot.” It was more, “Let’s talk about you, and here’s what this means for you.” It seemed like a moment where she shifted from being a competency-based professional to someone who was there for me. I’d imagine that’s a similar path advisors have to take, yes?

Herman Brodie: Absolutely. This is a classic example of the difference. There are things a human being can do — especially doctors, who are trained in a certain bedside manner — that the machine can’t do. The first thing one has to know about intelligent technologies is that clients’ expectations for the efficacy and accuracy of those technologies are much higher than they are for a human. So if the computer got it wrong, it would be unforgivable. But if a doctor gets it wrong, there’s a little more indulgence there. If the patient believes the doctor still has their best interests at heart, they’re more inclined to forgive. They do not forgive the machine. So if you put your clients in front of intelligent technologies, be aware that the bar for disappointment is going to be a lot higher. The second thing the research has shown is that even if the machine does nothing wrong — if it does something totally unexpected — trust breaks down. Even if it’s correct, but it does something the other does not expect, that has a damaging effect on trust. So if you put these technologies in front of your clients, these are the two things you need to be very much aware of. In terms of your conversation with the doctor — and this is where the doctor has enormous added value that the AI does not have — it’s in the way she responds to your particular concerns. The doctor can see whether you are stressed or anxious by the way you explain things. And in terms of the recommendations she gives: you can say, “Well, what should I do?” She can give you data about the rates of recovery for various pathologies, and what recovery rates are seen in various hospitals, and which ones she may recommend. But that’s not what you want from the doctor. You want to say, “If I were your brother, what would you do? If I were your son, if I were your father, what would you recommend?” And if she says, “You unfortunately have this pathology; if you were my father, I would recommend you do this” — that is enormously more powerful as a communication tool than simply giving some data and probabilities. That’s something the doctor can do but the AI can’t — well, at least not yet. And therefore, this is precisely where the added value is. The doctor herself, while you were waiting in the waiting room, could have been going into the AI as well. But there are things she can do that the AI can’t.

Sean Walters: Exactly — get the same table of information. Well, this has been enormously beneficial. I’d want to close with one broader question for you: if you could give one piece of advice to advisors, what would it be right now?

Herman Brodie: Well, it has to be the idea that you must build up your benevolence perceptions. In this industry, we are not perceived by our clients as necessarily having their interests at heart. If you build up your benevolence perceptions among your clients — and the book is basically about the multiple ways you can do this — you can enjoy a higher-trust relationship. When clients feel they’re in a high-trust relationship, that somebody has my back even when I’m not looking, then they’re in a position to do things like invest in riskier assets — and if you invest in riskier assets over the long run, you can earn higher returns, and not be obsessed by watching every uptick and downtick in the market. The second advantage this brings is that it provides a sort of cushion against any eventual competence mishap. So if you get a bad outcome, you’ll find that clients are much more indulgent if you’ve already built up these high benevolence perceptions. So start today, and try as much as possible to expand those benevolence perceptions by doing some of the recommendations in the book. It will help you today, and it will help you in the future, should we get some negative outcomes down the line.

Sean Walters: Excellent. Great advice, great book. I definitely enjoyed having you as a guest on this podcast series, Herman. I look forward to having you in front of our members at some conference in the future. So thank you all for listening to The Exceptional Advisor Podcast from the Investments & Wealth Institute. For more episodes and additional resources for advisors, please visit investmentsandwealth.org. If you enjoyed this conversation, be sure to subscribe, share it with a colleague, and join us again for the next episode. Until next time, thank you for listening.